According to the interest parity condition,if the domestic interest rate is 12 percent and the foreign currency is expected to depreciate by 2% against domestic currency. Then the foreign asset must offer an interest rate of ________%.

Question

Quizplus · Accepted Answer

The interest parity condition states that the difference in interest rates between two countries is equal to the expected depreciation or appreciation of their exchange rates. If the domestic interest rate is 12% and the foreign currency is expected to depreciate by 2% against the domestic currency, the foreign asset must offer an interest rate of 14% to compensate for the depreciation and equalize the returns.

According to the Interest Parity Condition,if the Domestic Interest Rate