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According to interest rate parity, if the interest rate offered by a home asset is i H %, the interest rate offered by a foreign asset is i F % and
According to interest rate parity, if the interest rate offered by a home asset is iH%, the interest rate offered by a foreign asset is iF% and the current spot exchange rate is et (from home’s perspective, that is, the price of one unit of the foreign currency is equal to 2 units of the home currency), what is the expected future nominal exchange rate et+1? answer 1.98.
Continue with the previous question: The value of the home currency is expected to
Answer : Appreciate by 1%.
Continue with the previous question: Suppose the actual future nominal exchange rate et+1 turns out to be higher than what you have calculated in Question #28. If you had already bought the foreign asset, you will ____ this mistake. Your purchase of this foreign asset has been measured as a ____ value in Canada’s capital account.
Answer Gain from; negative
Could somebody please explain all this in detail please why this is?
