The concept of 'Mental Accounting' in behavioural economics refers to:
A. The perfect fungibility of all money
B. Only the national accounts
C. The tendency of individuals to categorise and treat money differently depending on its source or intended use
D. Only the formal accounting systems of firms
Answer: Option C
Solution (By JKSSB Mock Tests)
Mental accounting describes the cognitive processes whereby individuals separate their wealth into non-fungible mental accounts, leading to behaviour that violates the principle of fungibility assumed in standard theory.
Explanation:
Covered interest parity states that the interest rate differential between two currencies equals the forward premium or discount, eliminating covered arbitrage opportunities.
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