When interest rate parity exists across two countries, the outcome is that:

Question

Quizplus · Accepted Answer

Interest rate parity ensures that the expected net rate of return on investments in different countries is roughly equivalent, once adjusted for exchange rate changes. This does not necessarily mean that nominal interest rates or exchange rates are equal, but rather that the potential returns, when considering currency fluctuations, are balanced to prevent arbitrage opportunities.

When Interest Rate Parity Exists Across Two Countries, the Outcome