Which of the following is a theory that the difference in interest rates between two countries is equal to the difference between the forward currency exchange rate and the spot exchange rate?

Question

Quizplus · Accepted Answer

This theory is known as interest rate parity. It suggests that the forward exchange rate, which is the rate agreed upon today for a currency exchange in the future, should reflect the interest rate differential between two countries. If the forward exchange rate does not match the interest rate differential, opportunities for arbitrage can arise.

Which of the Following Is a Theory That the Difference