Adjusted for risk, interest rate parity
A)holds only between Australian and New Zealand.
B)holds only when purchasing parity holds.
C)always holds.
D)holds only for larger countries.

Question

Quizplus · Accepted Answer

Interest rate parity, when adjusted for risk, is a fundamental principle in international finance that suggests that the difference in interest rates between two countries is equal to the expected change in exchange rates between the countries' currencies. It is a theoretical concept that should always hold in efficient markets, assuming no arbitrage opportunities.

Adjusted for Risk, Interest Rate Parity