According to the interest parity condition,the domestic interest rate is equal to the foreign interest rate

Question

Quizplus · Accepted Answer

The interest parity condition states that the difference between the domestic and foreign interest rates equals the expected change in exchange rates. In other words, the domestic interest rate is equal to the foreign interest rate plus or minus the expected change in exchange rates. Since the question asks for the relationship between the domestic interest rate and the expected appreciation of the domestic currency, we need to look at the sign of the expected change in exchange rates. If the domestic currency is expected to appreciate, the expected change in exchange rates is negative, so we need to subtract it from the foreign interest rate to get the domestic interest rate. Therefore, the correct answer is B: less the expected appreciation of the domestic currency.

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