If UIP Holds, the Interest Rate at Home Is 4

question 112

Multiple Choice

If UIP holds, the interest rate at home is 4%, and the exchange rate is expected to depreciate by 3%, then the foreign interest rate is:

• A) 1%.
• B) 3%.
• C) 7%.
• D) 12%.

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Definitions:

Tax Rates

The percentage at which an individual or corporation is taxed, which can vary depending on the type of tax and jurisdiction.

Tax Revenue

Government income generated from taxes levied on individuals and businesses.

Economic Instability

A situation where there is a high degree of unpredictability or fluctuation in the economic performance of a country, often characterized by high inflation, unemployment, and erratic growth.

Monetarists

Monetarists are economists convinced that changes in the amount of money circulating significantly impact a country's production in the short term and affect its price levels over extended durations.