Question

Does interest rate parity imply that interest rates are the same in all countries? Why might...

Does interest rate parity imply that interest rates are the same in all countries? Why might purchasing power parity fail to hold?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

the given statement is true because interest rate parity means there would be a parity among the interest rate between the banks in two different countries because of various factors like exchange rates and inflation .

Interest rate parity plays an important factor in foreign currency market in deciding upon the spot exchange rate and the forward exchange rate.

purchasing power parity fails to hold because there would always be a presence of transaction cost into the economy and that would lead to purchasing power failure. This is because arbitraging would not be taking place where the transaction cost is higher than the profits from arbitrage.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which one of the following supports the idea that real interest rates are equal across countries?...
Which one of the following supports the idea that real interest rates are equal across countries? Multiple Choice Unbiased forward rates condition International Fisher effect Interest rate parity Purchasing power parity Uncovered interest rate parity
The real interest rates and real exchanges rates are constant and equal in Germany and Turkey....
The real interest rates and real exchanges rates are constant and equal in Germany and Turkey. The Fisher equation and purchasing power parity hold in both countries. If the nominal interest rate is 8 percent in Germany and 10 percent in Turkey, do you expect Germany’s nominal exchange rate to appreciate, depreciate, or remain the same? Explain.
1.   What is the theory of purchasing power parity? Why would purchasing power parity hold? What...
1.   What is the theory of purchasing power parity? Why would purchasing power parity hold? What is the evidence on purchasing power parity: does it hold or not? If there are deviations from purchasing power parity, why are there deviations? Please provide any evidence or research available on these issues. Please provide reference websites
The empirical data on real exchange rates shows that the relative purchasing power parity (PPP) hypothesis...
The empirical data on real exchange rates shows that the relative purchasing power parity (PPP) hypothesis a. always holds. b. generally does not hold. c. holds in advanced countries. d. holds among countries that share a common currency.
Explain why, in order to preserve the purchasing power parity (PPP), a country with a higher...
Explain why, in order to preserve the purchasing power parity (PPP), a country with a higher inflation should have its currency depreciate against currencies of countries with lower inflation, all else equal (including real rates of interest in different countries).
Explain why, in order to preserve the purchasing power parity (PPP), a country with a higher...
Explain why, in order to preserve the purchasing power parity (PPP), a country with a higher inflation should have its currency depreciate against currencies of countries with lower inflation, all else equal (including real rates of interest in different countries). 3 sentences
Compare and contrast interest rate parity and purchasing power parity.
Compare and contrast interest rate parity and purchasing power parity.
Is it reasonable to expect real rates of interest to be identical across countries? Explain. What...
Is it reasonable to expect real rates of interest to be identical across countries? Explain. What does this imply about parity? Explain how a drop in the value of the dollar could affect the U.S. import and export sectors.
Does the theory of purchasing power imply that a dollar will have the same purchasing power...
Does the theory of purchasing power imply that a dollar will have the same purchasing power as one unit of a foreign nation’s currency?
what does the nominal interest rate parity state? Would the condition be violated if nominal interest...
what does the nominal interest rate parity state? Would the condition be violated if nominal interest rates in the domestic and foreign country were different on two securities that were identical in all aspects? A currency premium would lead to a modification of the nominal interest rate parity condition. Why?(essay)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT