T/F 11. Interest rate parity states that the percentage difference between the f

Question

T/F

11. Interest rate parity states that the percentage difference between the forward and the spot exchange rates is equal to the interest rate differential.

12. According to the Purchasing Power Parity, forward exchange rate adjusts perfectly to inflation

differentials between two countries.

13. Interest rate differential is a good forecaster of the exchange rate in the short run.

14. A currency quote with a forward premium should depreciate because the forward premium is equal to the interest rate differential.

15. In an efficient market, the typical investor could consider as asset price to reflect its true fundamental value at all times.

Explanation / Answer

11. True
Investors would be indifferent to investing in two different currencies since difference in forward and spot eschange rates offset the interest rate differential. .

12. True
Relative Purchasing Power parity states that changes in exchange rates should exactly offset the price effects of any inflation differentiaal between two countries.

13. True

14. False
Forward premium is not equal to interest rate differential but difference between forward and spot price.

15.True
In an effiicient market, asset price reflect its true value all the time.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.