Interest rate parity implies that the discounted spread between interest rates in two currencies should equal the percentage spread between forward and spot exchange rates.

Question

Quizplus · Accepted Answer

Interest rate parity is a theory that links exchange rates, spot, and forward, with interest rates. According to this theory, the difference in interest rates between two countries should equal the percentage spread between the forward and spot exchange rates. This relationship allows interest rate parity to ensure that there is no arbitrage opportunity between currencies. Therefore, the answer is true.

Interest Rate Parity Implies That the Discounted Spread Between Interest