# Explanation and proof of the interest parity condition.

Not what you're looking for?

Everyone pays a tax of 10 percent on interest and capital gains. Does this tax alter the analysis of the interest parity condition?

##### Purchase this Solution

##### Solution Summary

This solution is comprised of a simple explanation of how the payment of tax alters the interest parity condition.

##### Solution Preview

Before I answer this question, I'll discuss some of the fundamentals of interest parity (just in case you need a refresher).

The interest parity condition states that in an open economy, an interest rate above the world parity should lead speculators to expect a currency depreciation, not appreciation.

Covered interest parity is a condition that relates interest differentials to the forward premium or discount.

It begins with the interest parity condition:

(1+R) = ...

##### Purchase this Solution

##### Free BrainMass Quizzes

##### Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

##### Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

##### Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

##### Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

##### Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.