What can be said about the spot exchange rate of dollars for pounds if nominal interest rates are higher in the United States than in the United Kingdom?

Question

Quizplus · Accepted Answer

According to the interest rate parity theory, if nominal interest rates are higher in the United States than in the United Kingdom, then the spot exchange rate of dollars for pounds should be lower than the forward rate of dollars for pounds. This is because investors will prefer to invest in the U.S. to earn higher returns, so the demand for dollars will increase, leading to an appreciation of the dollar relative to the pound, resulting in a lower spot exchange rate.

What Can Be Said About the Spot Exchange Rate of Dollars