We can expect very small deviations from interest rate parity in
A)the domestic markets.
B)the Eurocurrency market.
C)the goods market.
D)All of the above.

Question

Quizplus · Accepted Answer

Interest rate parity refers to the theoretical concept that the difference in interest rates between two currencies should be equal to the expected change in exchange rates between those currencies. The Eurocurrency market consists of deposits denominated in a currency outside of its country of origin, and as such, there is less regulation and intervention from governments and central banks, allowing for a more efficient reflection of interest rate parity. Therefore, we can expect very small deviations from interest rate parity in the Eurocurrency market. In contrast, the domestic markets and the goods market may face more significant deviations due to various factors such as government intervention, trade barriers, and transaction costs.

We Can Expect Very Small Deviations from Interest Rate Parity