For this question,suppose the domestic interest rate is 4% and that the foreign interest rate is 7%.And finally,assume that the domestic currency is expected to depreciate by 3% during the coming year.Given this information,we know that

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According to the interest parity condition, the difference between domestic and foreign interest rates should be equal to the expected change in the exchange rate. In this case, the difference is 3% (7% - 4%) and the expected change in the exchange rate is also 3%. Therefore, individuals will be indifferent between holding domestic or foreign bonds, and will choose the foreign bonds since they offer a higher interest rate.

For This Question,suppose the Domestic Interest Rate Is 4% and That