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Author Question: Discuss studies based on the interest parity conditions. What will be an ideal ... (Read 126 times)

drink

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on: Jun 30, 2018
Discuss studies based on the interest parity conditions.
 
  What will be an ideal response?

Question 2

Explain why large interest rate differences would be strong evidence of unrealized gains from trade.
 
  What will be an ideal response?


Sassygurl126

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Reply #1 on: Jun 30, 2018
Answer to Question 1

In general, the formula does not hold and is not a good predictor of future devaluations. Even worse, it failed to predict correctly even the direction in which the spot exchange rate would change.

Answer to Question 2

The difference between onshore and offshore interest rates on similar assets denominated in the same currency should be small if information about global investment opportunities is transmitted efficiently. Data show that this is the case for the U.S., Germany, Japan and the Netherlands.


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drink

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Reply #2 on: Jun 30, 2018
Correct answers!


Sassygurl126

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Reply #3 on: Jun 30, 2018
Great! Please up vote :D


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