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    theory of interest rate parity

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    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

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    Solution Preview

    Hi There,
    <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.
    <br>Source: http://www.investopedia.com/terms/i/interestrateparity.asp
    <br>Interest ...

    Solution Summary

    This problem involves the fundamentals of the theory of interest rate parity