In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of

Name: In equilibrium position, spread between foreign and domestic rate of interest must be equal to spread of
Brand: Quizplus
Rating: 4.8 (56 reviews)

Question

Quizplus · Accepted Answer

In equilibrium, the spread between foreign and domestic interest rates must be equal to the spread between forward and spot exchange rates, according to the Interest Rate Parity theory. This ensures no arbitrage opportunities exist due to differences in interest rates and exchange rates.

In Equilibrium Position, Spread Between Foreign and Domestic Rate of Interest