Interest Rate Parity theory states that interest rates must be the same in all countries using floating exchange rates or else international markets will not be in equilibrium.

Question

Quizplus · Accepted Answer

Interest Rate Parity theory actually states that the difference in interest rates between two countries is equal to the expected change in exchange rates between those countries' currencies. It does not imply that interest rates must be the same across countries.

Interest Rate Parity Theory States That Interest Rates Must Be