If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan,then it implies that:
A)purchasing power parity exists.
B)the exchange market is in equilibrium.
C)the dollar/yen exchange rate is fixed.
D)interest rate parity exists.
E)both the currencies are pegged to a fixed amount of gold.

Question

Quizplus · Accepted Answer

If the return on investment is the same in both countries, then interest rate parity must exist, meaning that the interest rates in each country are equal after adjusting for the exchange rate. This does not necessarily imply purchasing power parity or a fixed exchange rate between the currencies, nor does it suggest that either currency is pegged to a fixed amount of gold.

If a Dollar Invested in the United States Yields the Same