Multiple Choice Questions on Interest rate parity refers to the concept that where market imperfections are few ........ for UPSC Civil Services Examination (General Studies) Preparation

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Multiple Choice Questions

Interest rate parity refers to the concept that where market imperfections are few ........

Economic Affairs Balance of Payments
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    Interest-rate parity refers to the concept that, where market imperfections are few,

    The same goods must sell for the same price across countries.

    Incorrect Answer

    Interest rates across countries will eventually be the same.

    Incorrect Answer

    There is an offsetting relationship between interest rate differentials and differentials in the forward spot exchange market.

    Correct Answer

    There is an offsetting relationship provided by costs and revenues in similar market environments.

    Incorrect Answer
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    Explanation:
    Interest-rate parity refers to the concept that, where market imperfections are few, there is an offsetting relationship between interest rate differentials and differentials in the forward spot exchange market.
    Interest rate parity plays an essential role in foreign exchange markets, connecting interest rates, spot exchange rates and foreign exchange rates.
     

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