3. The interest parity condition states that A) Interest rates must always be eq

Question

3. The interest parity condition states that

A) Interest rates must always be equal between all countries B) The difference between any pair of countries’ interest rate is equal to the spot exchange rate. C) The difference between any pair of countries interest rate is equal to the expected change in the exchange rate. D) People don’t care about the exchange rate when they invest, they only care about the interest rate. E) People don’t care about the exchange rate when they invest, all they care about is the exchange rate.

Explanation / Answer

"B"

The difference between any pair of countries' interest rate is equal to the spot exchange rate. INterest rate parity lays a relation between the interest, spot exchange rate and forex.  

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