Question: 27
(Choose 1 answer)
In the Interest Parity Condition, Rt - Rt = ( - Et)/Et + xt, where Rt - Rt is the interest rate differential and ( -
Et)/Et is the expected change in the exchange rate, what does xt stand for if it potentially is a market efficient
difference between the two?
A. market inefficiency
B. risk premium
C. forecast error
D. tracking error
E. excessive volatility
