Does interest rate parity imply that interest rates are the same in all countries?
Interest rate parity equalizes the interest rates from country to country. When a difference occurs, the currency with the higher interest rate is expected to depreciate and the currency with the lower interest rate will appreciate. The economic result is that the interest received will end up being the same from country to country.
Interest rate parity implies that any difference in interest rates between currencies are smoothed out by differences in exchange rates, implying that rates are essentially the same.
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