If money were free from all controls when transferred internationally, the real rate of interest should be the same in all countries.

Question

Quizplus · Accepted Answer

If money were free from all controls when transferred internationally, it would flow to the country with the highest real rate of interest. This would eventually lead to an equilibrium where the real rate of interest is the same in all countries. This principle is known as interest rate parity. However, in reality, there are various controls and barriers that prevent free flow of money, leading to differences in real interest rates among countries.

If Money Were Free from All Controls When Transferred Internationally