In the Interest Parity Condition, Rt - R t = ( - Et)/Et + xt, ...

[TVarnum]

In the Interest Parity Condition, Rt - R t = ( - Et)/Et + xt, where Rt - R t is the interest rate differential and ( - Et)/Et is the expected change in the exchange rate, what does xt stand for if it potentially is a market efficient difference
 
  between the two? A) market inefficiency
  B) risk premium
  C) forecast error
  D) tracking error
  E) excessive volatility

Question 2

Trade liberalization should precede capital account liberalization. Discuss.
 
  What will be an ideal response?

[tsternbergh47]

Answer to Question 1

B

Answer to Question 2

The answer is probably true. The issue is related to the theory of second best and the proper sequence of reform measures. Of course, students may argue against such step-by-step measures.

[TVarnum]

TYSM

[momolu]

Thanks for the timely response, appreciate it