In efficient markets, interest rate parity should assure that the costs of a forward hedge and money market hedge should be approximately the same.

Question

Quizplus · Accepted Answer

Interest rate parity is a theory that suggests that the difference in interest rates between two countries should equal the rate at which the forward exchange rate between those countries' currencies is expected to change over the same period. This implies that a forward hedge and money market hedge should be approximately the same in terms of costs in an efficient market. Therefore, the statement is true.

In Efficient Markets, Interest Rate Parity Should Assure That the Costs