The economic theory that exchange rates will adjust gradually to offset any differences in interest rates between two countries is known as:

Question

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Interest rate parity theory posits that the difference in interest rates between two countries will be equal to the differential between the forward exchange rate and the spot exchange rate. This principle ensures that arbitrage opportunities are minimized, as the currency of the country with a higher interest rate will depreciate against the currency of the country with a lower interest rate, balancing the returns on investments in different currencies.

The Economic Theory That Exchange Rates Will Adjust Gradually to Offset