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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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Does interest rate parity imply that interest rates are the same in all countries?

Summary Introduction

To identify: Whether the interest rate parity indicates that the interest rates remains same in all countries or not.

Introduction:

Interest Rate Parity:

It refers to that theory which indicates the difference of interest rates provided by two different countries to be the same as the difference of forward exchange rate and spot exchange rate.

Explanation

According to interest rate parity, the investments of same kind of risk should provide same return in all countries.

Equation of interest rate parity,

Forwad exchange rateSpot exchange rate=

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