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    Question

    The theory of interest rate parity means that

    the__________.
    A interest rates are equal in two countries Correct Answer Incorrect Answer
    B difference between the spot rate and the forward rate reflects the difference in interest rates between two countries in the opposite direction Correct Answer Incorrect Answer
    C difference between the spot rate and the future spot rate reflects the interest rate difference between two countries in the opposite direction Correct Answer Incorrect Answer
    D future spot rate reflects the inflation difference between two countries Correct Answer Incorrect Answer
    E all of the above Correct Answer Incorrect Answer

    Solution

    The theory of interest rate parity means that the difference between the spot rate and the forward rate reflects the difference in interest rates between two countries in the opposite direction.

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