Although IRP tends to hold,it may not hold precisely all the time
A)due to transactions costs,like the bid-ask spread.
B)due to asymmetric information.
C)due to capital controls imposed by governments.
D)due to transactions costs,like the bid-ask spread,as well as capital controls imposed by governments.

Question

Quizplus · Accepted Answer

Both transaction costs and capital controls can affect the ability of investors to take advantage of interest rate differentials between two countries, thereby weakening or even breaking the relationship between the spot exchange rate and the interest rate differential. Therefore, IRP may not hold precisely due to both transaction costs and capital controls.

Although IRP Tends to Hold,it May Not Hold Precisely All