If there are equal rates of return between assets in two currencies, then there is
A) purchasing power parity.
B) interest rate parity.
C) parity of exchange.
D) foreign exchange parity.

Question

Quizplus · Accepted Answer

Interest rate parity is a theory that suggests the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate. This concept is used to prevent arbitrage opportunities due to the differences in interest rates between countries.

If There Are Equal Rates of Return Between Assets in Two