The condition stating that the expected percentage change in the exchange rate is equal to the difference in interest rates between the countries is called:

Question

Quizplus · Accepted Answer

Uncovered interest parity states that the expected percentage change in the exchange rate is equal to the difference in interest rates between the countries. Therefore, the condition described in the question is uncovered interest parity. The other answer options are related to different concepts: A) Unbiased forward rates condition is a condition stating that the forward exchange rate should be an unbiased predictor of the future spot exchange rate. C) The international Fisher effect states that the expected change in the exchange rate is equal to the difference in nominal interest rates between two countries, adjusted for the expected inflation differential. D) Purchasing power parity states that in the long run, exchange rates should adjust to equalize the buying power of different currencies. E) Interest rate parity refers to the equality between the interest rates of two countries.

The Condition Stating That the Expected Percentage Change in the Exchange