The interplay between interest rate differentials and exchange rates - 3724

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The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the: 

A. 

purchasing power parity theory.

B. 

balance of payments quantum theory.

C. 

arbitrage markets theory.

D. 

interest rate parity theory.

 
Solution Description

The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the: