Interest rate and exchange rate

Interest rate and exchange rate

Follow the link for more information. Economists have found empirical evidence that covered interest rate parity generally holds, though not with precision due to the effects of various risks, costs, taxation, and ultimate differences in liquidity. When both covered and uncovered interest rate parity hold, they expose a relationship suggesting that the forward rate is an unbiased predictor of the future spot rate. Interest rate parity rests on certain assumptions, the first interest rate and exchange rate that capital is mobile – investors can readily exchange domestic assets for foreign assets.

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