Question

Which formula represents Interest Rate Differential?

Options

• \[\text{Interest Rate Differential}=i_A-i_B\]

• \[\text{Interest Rate Differential}=i_A+i_B\]

• \[\text{Interest Rate Differential}=\frac{\text{Domestic Price}}{\text{Foreign Price}}\]

• \[\text{Interest Rate Differential}=\frac{i_A}{i_B}\]

Answer 1

Interest Rate Differential is measured as the difference between \[i_A\] and \[i_B\]. It is written as \[\text{Interest Rate Differential}=i_A-i_B\].