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Author Question: In the Interest Parity Condition, Rt - R t = ( - Et)/Et + xt, where Rt - R t is the interest rate ... (Read 119 times)

TVarnum

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on: Jun 30, 2018
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?


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tsternbergh47

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Reply #1 on: Jun 30, 2018
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

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Reply 2 on: Jun 30, 2018
Excellent

bigsis44

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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