If UIP holds, the foreign interest rate is 10%, and the home currency is expected to depreciate by 4%, then the home interest rate is:
A) 4%.
B) 6%.
C) 10%.
D) 14%.

Question

Quizplus · Accepted Answer

Under the Uncovered Interest Parity (UIP) condition, the home interest rate equals the foreign interest rate plus the expected depreciation rate of the home currency. Therefore, 10% (foreign interest rate) + 4% (expected depreciation) = 14%.

If UIP Holds, the Foreign Interest Rate Is 10%, and the Home