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Social Science Clinic => Economics => Topic started by: Awilson837 on Jun 30, 2018

Title: Interest rate parity is more likely to hold in the short run than purchasing power parity. ...
Post by: Awilson837 on Jun 30, 2018

Interest rate parity is more likely to hold in the short run than purchasing power parity.
 
  Indicate whether the statement is true or false

Question 2

Countries with large current account surpluses might be viewed by the market as candidates for
 
  A) devaluation.
  B) revaluation.
  C) bankruptcy.
  D) depreciation.
  E) investment.

Title: Interest rate parity is more likely to hold in the short run than purchasing power parity. ...
Post by: johnpizzaz on Jun 30, 2018

Answer to Question 1

TRUE
Explanation: Financial asset prices typically adjust to new information more quickly than goods prices. Since interest rates are the return to holding interest-bearing financial assets, we might expect interest rates to adjust quickly to new information just like exchange rates.

Answer to Question 2

B