International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 8

Suppose that the international parity conditions all hold and a country has a higher nominal interest rate than the United States. Characterize the forward premium (or discount) on the dollar, the country's inflation rate compared to the United States, the expected rate of currency appreciation or depreciation versus the dollar, and the country's real interest rate compared to the U.S. real interest rate.