According to the interest parity condition,if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent,then the expected ________ of the foreign currency must be ________ percent.

Question

Quizplus · Accepted Answer

The interest parity condition suggests that the expected appreciation of the foreign currency should offset the interest rate differential to prevent arbitrage. Here, with a 2 percent higher domestic interest rate, the foreign currency is expected to appreciate by 2 percent to maintain parity.

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