Assume that interest rate parity holds. The Nigerian interest rate is 50%, and the UK interest rate is 8%. Subsequently, the UK interest rate decreases to 7%. According to interest rate parity, the peso's forward ____ will ____.

Question

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According to interest rate parity, the forward rate reflects the interest rate differential between two countries. Initially, the UK interest rate is 8%, and the Nigerian interest rate is 50%, leading to a forward discount on the Nigerian currency. When the UK interest rate decreases to 7%, the interest rate differential increases, causing the forward discount on the Nigerian currency to increase.

Assume That Interest Rate Parity Holds