If interest rate parity prevails, an investor should ___ expect to make more by investing in fixed-income securities of a country that has _____ interest rates than the investor's home country.

Question

Quizplus · Accepted Answer

Interest rate parity theory suggests that the difference in interest rates between two countries will be offset by changes in the exchange rate. Therefore, an investor should not expect to make more by investing in a country with higher interest rates because the potential gains are expected to be offset by currency depreciation.

If Interest Rate Parity Prevails, an Investor Should ___ Expect