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Questions › UGC-NET › UGC-NET 2023 › Q8
2 marksInternational Economics › Balance of payments and exchange rates › Interest parity: covered and uncoveredHardabout 2 min

UGC-NET 2023 Question 8: Balance of payments and exchange rates

Suppose India is the home country and USA is the foreign country. The interest rates in India and USA are 6% and 4% respectively. The exchange rate of the US Dollar is Rs. 80 today but is expected to rise to Rs. 84 in one year. Which of the following is true, according to the uncovered interest arbitrage parity condition?

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Answer and worked solution

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Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.

What this question tests

This question is on Interest parity: covered and uncovered, part of Balance of payments and exchange rates in International Economics.

How interest differentials and expectations tie exchange rates to interest rates.

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