alleryStart learning →Two assumptions central to interest rate parity are capital mobility and
Afixed corporate tax rates
Bzero domestic price inflation
Ca gold-backed currency base
Dperfect asset substitutability
Answer & Solution
Correct answer: D. perfect asset substitutability
Assets must be readily exchangeable and similar in risk and liquidity for investors to equalise returns.
Keep practising Foreign Exchange Exposure and Risk Management
Browse all Foreign Exchange Exposure and Risk Management questions for CA Final, or explore more Strategicfinancialmanagement topics.
Related questions
European banks may use their own VaR models to setUnder the Bretton Woods system, many businessesA shift in exchange rates that changes demand for a good sold abroad is an example ofEconomic risk of foreign investment includes exchange rates, regulation andFutures cannot fully mitigate currency risk as they exist only forForward and futures contracts are similar in that bothThe Garman-Kohlhagen formula needs two interest rates becauseThe value of a European FX option is typically computed assuming the exchange rate follows