Assume that the uncovered interest parity condition holds. Also assume that the Australian interest rate is greater than the Japanese interest rate. Given this information, we know that investors expect:
A) the Australian interest rate to fall.
B) the yen to depreciate.
C) the Australian dollar- pound exchange rate to remain fixed.
D) the Australian dollar to appreciate.
E) the yen to appreciate.

Question

Quizplus · Accepted Answer

According to the uncovered interest parity condition, if the Australian interest rate is higher than the Japanese interest rate, investors expect the Australian dollar to depreciate relative to the yen, which implies that the yen is expected to appreciate.

Assume That the Uncovered Interest Parity Condition Holds