The increase in supply of short-term investments in the U.S. by Chinese investors when rates are higher in the U.S. is an example of purchasing power parity.

Question

Quizplus · Accepted Answer

The increase in supply of short-term investments in the U.S. by Chinese investors when rates are higher in the U.S. is an example of interest rate parity, not purchasing power parity. Purchasing power parity is the theory that exchange rates should adjust so that the same basket of goods and services has the same price across different countries.

The Increase in Supply of Short-Term Investments in the U