Uncovered interest parity is defined as:

Question

Quizplus · Accepted Answer

Uncovered Interest Parity (UIP) is the theoretical relationship between interest rates and exchange rates. It states that the expected return on two currencies should be equal when measured in the same currency. The formula for UIP suggests that the expected percentage change in the exchange rate between two currencies should be equal to the difference in interest rates between the two countries. In this context, B is the correct formula as it satisfies the UIP equation with the correct variables (R being the interest rate).

Uncovered Interest Parity Is Defined As