Adjusted for risk, interest rate parity
A) holds only for larger countries.
B) holds only between the U.S. and Canada.
C) holds only when purchasing parity holds.
D) always holds.

Question

Quizplus · Accepted Answer

Interest rate parity is a theory that suggests the difference in interest rates between two countries is equal to the expected change in exchange rates between those countries' currencies. It does not depend on the size of the countries, specific pairs of countries, or the condition of purchasing power parity holding.

Adjusted for Risk, Interest Rate Parity