Assume that the interest rate in the home country of Currency X is much lower than the U.S. interest rate. According to interest rate parity, the forward rate of Currency X a. should exhibit a discount. b. should exhibit a premium. c. should be zero

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12-03-2020
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Assume that the interest rate in the home country of Currency X is much lower than the U.S. interest rate. According to interest rate parity, the forward rate of Currency X a. should exhibit a discount. b. should exhibit a premium. c. should be zero

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osondumartins osondumartins · Answer 1 · 2020-03-17T04:22:42+01:00

Answer: B. should exhibit a premium.

Explanation: Interest rate parity is a term used in the field of finance to mean that the difference between the interest rates of two countries will remain equal to the difference obtained when calculated through the forward exchange rate and the spot exchange rate techniques.

INTEREST RATE PARITY IS FUNDAMENTAL AS IT TRIES TO DESCRIBE THE RELATIONSHIP BETWEEN INTEREST RATES AND CURRENCY EXCHANGE RATES.

Country X should exhibit a premium while the United States should exhibit a Discount.