Under uncovered interest parity, if the domestic interest rate is greater than the foreign interest rate, then exchange rates are:
A) expected to rise.
B) expected to stay constant.
C) expected to fall.
D) uncertain.

Question

Quizplus · Accepted Answer

Under uncovered interest parity, if the domestic interest rate is greater than the foreign interest rate, then there is an incentive for investors to borrow in the foreign country and invest in the domestic country. This will lead to an increase in the demand for the domestic currency and a decrease in the demand for the foreign currency, causing the exchange rate to rise.

Under Uncovered Interest Parity, If the Domestic Interest Rate Is