In the following problem, how do you determine which is foreign interest and which is domestic interest rate? ------------ Suppose the spot exchange rate quote is ZAR8.385 per euro. The 1-year nominal rate in the Eurozone is 10.0% and the 1-year nominal rate in South Africa is 8.0%. Calculate the exact expected spot rate and the expected change in the exchange rate using uncovered interest rate parity.
You can say use either as as the domestic or foreign as long as you keep it consistent. Because the spot rate was given in ZAR per EURO, I would use ZAR as rdc. But this is strictly because of my preference.