Define the nominal exchange rate as the foreign price of domestic currency, e.g. the amount of...
Define the nominal exchange rate as the foreign price of
domestic currency, e.g. the amount of Yen
per dollar. When the interest parity condition holds, we know that
the domestic interest rate must
be equal to:
Group of answer choices
the foreign interest rate minus the expected rate of appreciation of the domestic currency.
the expected rate of appreciation of the domestic currency.
the foreign interest rate.
the expected rate of depreciation of the domestic currency.
the foreign interest rate minus the expected rate of appreciation of the foreign currency.
Homework Answers
First option is correct
According to the interest parity condition the rate of interest on deposits denominated in the domestic currency is the sum of the rate of interest on deposits denominated in foreign currency and the expected exchange rate depreciation of the foreign currency. It is also difference between the rate of interest on deposits denominated in foreign currency and the expected appreciation of the domestic currency.
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Define the nominal exchange rate as the foreign price of
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