If the Foreign Interest Rate Is 12%, the Current Exchange

question 29

Short Answer

If the foreign interest rate is 12%, the current exchange rate is 4 and the domestic interest rate is 7%, what is the expected future exchange rate according to the interest parity condition?

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Definitions:

Comparative Advantage

The ability of a country, individual, company, or region to produce a good or service at a lower opportunity cost than its competitors.

Two Goods

A scenario in economics discussing the trade-off or choice between two different products or commodities.

Specialization

The process in which individuals or entities focus on a narrow area of expertise or production, leading to increased efficiency and productivity.

Absolute Advantage

Absolute advantage refers to the ability of a country, company, or individual to produce a good or service more efficiently than competitors, using the same amount of resources.