If the purchasing power parity and uncovered interest parity conditions simultaneously hold true, then it is unambiguously true that:
A) foreign exchange markets are efficient.
B) real interest rates are equalized.
C) there is covered interest parity.
D) people can profit from arbitrage in goods and financial markets.

Question

Quizplus · Accepted Answer

If both conditions hold true, it means that exchange rates reflect the true value of currencies and real interest rates in different countries are equal. Therefore, there will be no opportunities for arbitrage in financial markets.

If the Purchasing Power Parity and Uncovered Interest Parity Conditions