Real interest parity is important in determining changes in the nominal exchange rate.

Question

Quizplus · Accepted Answer

Real interest parity primarily concerns the relationship between real interest rates and expected changes in the real exchange rate over time, rather than directly determining changes in the nominal exchange rate. Changes in the nominal exchange rate are more directly related to nominal interest rate differentials according to the interest rate parity theory.

Real Interest Parity Is Important in Determining Changes in the Nominal