Which of the following reasons explain why interest rate parity may not hold perfectly?
I.Transaction costs
II.Business loan risks
III.Offshore risk accounting rules
IV.Political risk

Question

Quizplus · Accepted Answer

Transaction costs, which refer to the fees associated with converting one currency to another, can impact the exchange rate and prevent interest rate parity from holding. Additionally, political risk can change the perceived riskiness of a currency and affect the exchange rate. Offshore risk accounting rules and business loan risks, however, are less likely to directly impact interest rate parity.

Which of the Following Reasons Explain Why Interest Rate Parity