Ask Question
26 April, 09:19

According to interest rate parity (IRP)

a. the future spot rate differs from the current spot rate by a sufficient amount to offset the inflation differential between two currencies.

b. the forward rate differs from the spot rate by a sufficient amount to offset the interest rate differential between two currencies.

c. the forward rate differs from the spot rate by a sufficient amount to offset the inflation rate differential between two currencies.

d. the future spot rate differs from the current spot rate by a sufficient amount to offset the interest rate differential between two currencies.

+4
Answers (1)
  1. 26 April, 12:36
    0
    The answer is: B) the forward rate differs from the spot rate by a sufficient amount to offset the interest rate differential between two currencies.

    Explanation:

    Interest rate parity (IRP) states that a strong relationship exists between interest rates and how the value of a currency moves.

    The currency exchange rate is how much of a currency is needed to buy one unit of a different currency. There are two types of exchange rates:

    spot rate: current exchange rate forward rate: the rate at which a bank agrees to exchange one currency for another in the future

    Also, different countries usually have different interest rates in their economies. For example, a US T-Bill may yield a 3% interest rate while a bond from the European Central Bank will only yield 1%.

    The IRP refers to the fact that is doesn't matter if you invest your money in your home country and then exchange it for a foreign currency, or you do it backwards and first exchange your money for a foreign currency and then invest it. Your earnings will remain the same since the exchange rate (spot and forward) and the interest rate are connected.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “According to interest rate parity (IRP) a. the future spot rate differs from the current spot rate by a sufficient amount to offset the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers