When Interest Rate Parity (IRP)holds between two different countries X and Y,your decision to invest your money will:
A) be indifferent between country X and country Y.
B) not involve forward hedging.
C) depend on which country initiated the IRP.
D) not involve the foreign exchange rates.

Question

Quizplus · Accepted Answer

When IRP holds between two different countries, it means that the expected return on investing in both countries is equal. Therefore, the decision to invest your money will be indifferent between country X and country Y. There would be no need for forward hedging or consideration of foreign exchange rates as they are assumed to be at equilibrium. The initiation of IRP is also irrelevant to the decision-making process.

When Interest Rate Parity (IRP)holds Between Two Different Countries X