Answer to Question #71078 in Other Economics for Mjar
2) Explain the interest parity condition and how it can be used to determine the equilibrium exchange rate. A full verbal and graphical discussion is needed.
2) Interest rate parity is a theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. Interest rate parity plays an essential role in foreign exchange markets, connecting interest rates, spot exchange rates and foreign exchange rates.
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