Multiple Choice
Which of the following is not true regarding interest rate parity (IRP) ?
A) When interest rate parity holds, covered interest arbitrage is not possible.
B) When the interest rate in the foreign country is higher than that in the home country, the forward rate of that country's currency should exhibit a discount.
C) When the interest rate in the foreign country is lower than that in the home country, the forward rate of that country's currency should exhibit a premium.
D) When covered interest arbitrage is not feasible, interest rate parity must hold.
E) All of these are true.
Correct Answer:
Verified
Correct Answer:
Verified
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