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The interest parity equilibrium holds when we make a loss.
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IF Covered Interest rate Parity says that interest rate differential equal?
forward/discount rate premium
What are the Theories of Foreign Exchange?
Purchase power parity theory Interest rate parity theory International Fishers effect
What is the relevance of covered interest rate parity to forward contract pricing?
In freely traded (not restricted) currency pairs, Covered Interest Parity absolutely drives the forward price. This is through arbitrage In restricted currencies it may or may not drive the forward price as it is not readily arbitragable.
What is the relationship between Interest rate parity with exchange rate?
Exchange rate is the rate at which one country's currency is changed for another country's currency. For example the rate at which one dollar can be changed for pound sterling or any other currency.
Purchasing power parity theory is related with?
exchange rate
Is- lm uip diagram?
Interest rate parity between two countries taking into account the expected currency exchange und the, from the national bank determinated, current currency exchange.
Why Purchasing power parity does not hold?
because it has been tested by several researchers and they found that it does not hold
Factors affecting exchange rate?
government policy intrest rate parity balance of payment changes
Explain why the FED cannot set intermediate targets in terms of both monetary aggregates and interest rates?
Monetary aggregate is a goal of money supply. Interest rate is a goal of a constant rate. To hold a specific money supply the interest rate would fluctuate. To hold a specific interest rate the money supply would fluctuate. So they can not work together.Check this out and read 11.2 through 11.4http://www.pitt.edu/~jduffy/econ280/lec1213.pdf
Currencies of countries with high inflation rates tend to have forward discounts.why?
This question is based on the concept of interest rate parity between two countries. A country with a high inflation rate will have high interest rates as compared to other countries. this will make it's currency to depreciate against its trading partners hence the forward discount.
Why does the FED cannot set intermediate targets in terms of both monetary aggregates and interest rates?
Monetary aggregate is a goal of money supply. Interest rate is a goal of a constant rate. To hold a specific money supply the interest rate would fluctuate. To hold a specific interest rate the money supply would fluctuate. So they can not work together.Check this out and read 11.2 through 11.4http://www.pitt.edu/~jduffy/econ280/lec1213.pdfProf. Duffy from the University of Pittsburgh
What is nominal interest?
Nominal InterestA nominal interest rate is the interest rate that does not compensate for inflation. This is used in relation to "effective interest rate" or "real interest rate."" Real Interest Rate = Nominal Interest Rate - Inflation Rate " Improvement suggested by Palash Bagchi.
