Real interest parity arises from combining: (I) Relative purchasing power parity. (II) Uncovered interest parity. (III) Covered interest parity.
A) both I and II
B) both I and III
C) both II and III
D) I, II, and III

Question

Quizplus · Accepted Answer

Real interest parity combines relative purchasing power parity and uncovered interest parity, as it involves the relationship between real interest rates and expected changes in exchange rates, which are influenced by inflation differentials and interest rate differentials without forward contracts.

Real Interest Parity Arises from Combining: (I) Relative Purchasing Power