Which of the following reasons explain why interest rate parity may not hold perfectly?
I.Controls on financial capital flows
II.Offshore risk accounting rules
III.Different tax rates for interest and foreign exchange rate earnings
IV.Time zone fluctuations

Question

Quizplus · Accepted Answer

Interest rate parity assumes free movement of capital, so controls on financial capital flows and different tax rates for interest and foreign exchange rate earnings can hinder its perfect hold. Offshore risk accounting rules and time zone fluctuations, on the other hand, do not directly affect interest rate parity.

Which of the Following Reasons Explain Why Interest Rate Parity