Question

20. As the expected future spot rate moves closer to the spot rate, uncovered interest parity indicates that: The answer depends on whether the expected future spot rate is higher or lower than the spot rate. interest rates should diverge. interest rates should remain constant. interest rates should converge.

Answer 1

The answer depends on whether the expected future spot rate is higher or lower than the spot rate

Step-by-step explanation:

Based on the scenario been described in the question, where we see that expected future spot rate moves closer to the spots rate the uncovered parity rate will indicate whether the expected future spot rate is higher or lower than the spot rate

The Uncovered Interest Rate Parity (UIRP) is a financial definition that assumes that the variation in the nominal interest rates within two countries will be the same to the relative changes in the foreign exchange rate over equal period.