Question

Assume that uncovered interest parity holds. If i(US)=0.01 and i(EURO)=0.05 then does the market expect the dollar to appreciate or depreciate relative to the euro.*by how much in percentage terms*?
How can this be calculated? Do I need information from the questions before this one or all the variables I need present in the question?

Additional Requirements
Level of Detail: Show all work
Other Requirements: the equation we have used in the class is i (US) = ((expected rate – spot rate)/spot rate) + i(EURO). Please include the work!



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  • CreatedAugust 05, 2013
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