Suppose that the one-year U.S.interest rate is 8% and the equivalent one-year India interest rate is 12%.Using the exact covered interest parity,the dollar is expected to:

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Covered interest parity (CIP) suggests that the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. In this case, with the U.S. interest rate at 8% and India's at 12%, the dollar is expected to appreciate by the interest rate differential, which is 4%. However, the exact percentage change is calculated using the formula [(1+foreign interest rate)/(1+domestic interest rate)] - 1. Using this formula, [(1+0.12)/(1+0.08)] - 1 = 0.036 or 3.6%, indicating the dollar is expected to appreciate by 3.6%.

Suppose That the One-Year U