Q659
Theory according to which difference between expected appreciation and foreign interest must be equal to domestic interest rate is called
A.
interest rate parity theorem
AnswerB.
appreciation parity theorem
C.
domestic parity theorem
D.
foreign interest parity theorem
Answer: Option A
Solution
Answer: Option A
Solution:
Theory according to which difference between expected appreciation and foreign interest must be equal to domestic interest rate is interest rate parity theoremcalled. Interest rate parity (IRP) is a theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.