A constant differential between the interest rates of two countries over different terms to maturity implies that future changes in the exchange rate are expected to occur at which rate?
A) constant
B) increasing
C) decreasing
D) None of the above

Question

Quizplus · Accepted Answer

A constant differential in interest rates suggests that the exchange rate is expected to change at a constant rate, according to the interest rate parity theory.

A Constant Differential Between the Interest Rates of Two Countries