According to the interest parity condition, the domestic interest rate falls if the _____ rises, ceteris paribus.
A) foreign interest rate
B) exchange rate
C) expected future exchange rate
D) none of the above

Question

Quizplus · Accepted Answer

The interest parity condition suggests that the domestic interest rate will fall if the expected future exchange rate rises, ceteris paribus, as investors will anticipate a higher return from foreign investments when converting back to the domestic currency in the future.

According to the Interest Parity Condition, the Domestic Interest Rate