In equilibrium, interest rates adjust so that the nominal U.S. interest rate is equal to the
A)foreign nominal interest rate minus the expected change in the exchange rate.
B)foreign nominal interest rate plus the expected change in the exchange rate.
C)foreign real interest rate that has been adjusted for expected changes in prices.
D)foreign real interest rate plus the exchange rate risk.

Question

Quizplus · Accepted Answer

In equilibrium, the nominal U.S. interest rate is equal to the foreign nominal interest rate plus the expected change in the exchange rate, according to the interest rate parity condition.

In Equilibrium, Interest Rates Adjust So That the Nominal U