Interest rate parity (IRP) holds within the bounds of transactions costs in the international currency and Eurocurrency markets.

Question

Quizplus · Accepted Answer

Interest rate parity is a theoretical concept that suggests that the difference in interest rates between two currencies should be equal to the differential of the exchange rate between those currencies over the same period. However, in reality, there are transaction costs that make it difficult for IRP to hold exactly true. Within the bounds of these transaction costs, IRP can be considered to hold. Therefore, the statement is true.

Interest Rate Parity (IRP) Holds Within the Bounds of Transactions