There is no logic behind Covered & Uncovered Interest Rate Parity
In the real world, we would expect that when a central bank of a particular country raises interest rates, that country’s currency starts to appreciate, much like the US dollar has appreciated ever since the Fed started raising rates since December 2017.
Why then, does the Covered and Uncovered Interest Rate Parity state that the currency with the higher interest rate should trade at a forward discount and a lower expected spot price in the future, (respectively for Covered & Uncovered).
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