The theory of interest rate parity states that the annual percentage differential in the forward market for a currency quated in terms of another currency is equal to the approximate difference in _______ prevailing in the two countries
a. interest rates
b. trade deficit rates
c. GNP growth rates
<br>The answer is A. Here's some extra info for you regarding Interest Rate Parity:
<br>A theory that the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.
This problem involves the fundamentals of the theory of interest rate parity