Which of the following is an example of interest rate parity?
A)The Japanese yen trades at the same exchange rate as the Swiss franc.
B)US dollar rates on one-year US Treasury securities equal one-year Japanese government bond rates.
C)US dollar rates on one-year US Treasury securities equal one-year Japanese government bond rates, restated in dollars.
D)British pound two-year forward rates equal two-year Swiss franc forward rates.

Question

Quizplus · Accepted Answer

Interest rate parity is the concept that the difference in interest rates between two countries should be reflected in the exchange rate between their currencies. When two countries have equal interest rates, their currencies should be at parity (equal value). Choice C reflects this concept by stating that the interest rates on US Treasury securities and Japanese government bonds are equal when restated in dollars, indicating that the value of the yen and the dollar should be at parity. The other choices do not specifically relate to interest rate parity.

Which of the Following Is an Example of Interest Rate