With covered interest parity, the forward exchange rate O equals the spot exchange rate plus the difference between the home and foreign interest rates is equal to the expected future spot exchange rate always equals the spot exchange rate equals the interest rate differential O must be higher than the spot exchange rate
With covered interest parity, the forward exchange rate O equals the spot exchange rate plus the difference between the home and foreign interest rates is equal to the expected future spot exchange rate always equals the spot exchange rate equals the interest rate differential O must be higher than the spot exchange rate
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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