Which of the following is a feature of the 'Uncovered Interest Parity' puzzle or forward-premium puzzle?
A. High-interest currencies tend to appreciate rather than depreciate as uncovered interest parity would predict
B. Forward rates are perfect predictors of future spot rates
C. High-interest currencies always depreciate as predicted
D. Interest differentials are always zero
Answer: Option A
Solution (By JKSSB Mock Tests)
Empirical evidence often shows that currencies with high interest rates tend to appreciate, contrary to the prediction of uncovered interest parity that they should depreciate; this is known as the forward-premium puzzle.
Explanation:
The Kuznets hypothesis proposes an inverted-U relationship between income inequality and per capita income: inequality rises in the early stages of development and declines later.
Explanation:
A soft currency is one that is less widely used in international trade and finance and may experience greater volatility or convertibility restrictions compared with hard currencies.
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