Suppose that the covered interest parity holds.If real interest rates are equal in two countries,then:

Question

Quizplus · Accepted Answer

Covered interest parity (CIP) implies that the interest rate differential between two countries is offset by the forward premium or discount to prevent arbitrage opportunities. If real interest rates are equal, the nominal interest rate differential reflects the expected inflation differential. Thus, all statements are correct in the context of CIP when real interest rates are equal across countries.

Suppose That the Covered Interest Parity Holds