Which of the following regarding potential problems with an IRP is NOT true?
A) Evidence on IRP theories is mixed.
B) Herd behavior can cause large purchases or sales of a particular currency that drive values beyond their normal bounds,resulting in problems such as currency crises.
C) When interest rates change in the U.S.,foreign interest rates should also change under the IRP.However,this may not happen.
D) International investors may globally diversify their investments and behave passively toward arbitrage activities.
E) There are no problems with IRP.
Correct Answer:
Verified
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