A formal statement of IRP is
A) $\frac { F ( \$ / € ) } { S ( \$ / € ) }$ = $\frac { 1 + i _ { \$ } } { 1 + i _ { € } }$ .
B) $\frac { F ( \$ / € ) } { S ( \$ / € ) }$ = $\frac { 1 + i } { 1 + i _ { \$ } }$ .
C) $\frac { F ( \$ / € ) - S ( \$ / € ) } { S ( \$ / € ) }$ = $\frac { 1 + i _ { \$ } } { 1 + i _ { € } }$ .
D)F($ / €)- S($ / €)= $i _ { \$ }$ - $i _ { \epsilon }$ .

Question

Quizplus · Accepted Answer

This formula is known as the Interest Rate Parity (IRP) theory, which states that the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate. Choice A represents this theory in its formal statement where F($/€) is the forward exchange rate, S($/€) is the spot exchange rate, i$ is the interest rate in the US, and i€ is the interest rate in the Eurozone.

A Formal Statement of IRP Is A) F($/€)S($/€)\frac { F ( \$ / € ) } { S ( \$ / € ) }S($/€)F($/€)​

A Formal Statement of IRP Is
A) $\frac { F ( \$ / € ) } { S ( \$ / € ) }$