as per IRP, the country with the higher relative interest rate will expect a depreciation of it’s currency (in terms of it’s futures price). however, in Bk 3, capital mkt expectations, EOC 18… they have mentioned in the solutions that the country with the higher relative interest rate (10yr govt rate) will see a strengthening of their currency. am i missing something here?
anyone?>
it depends on time period in short term the country with the higher relative interest rate will see a strengthening of their currency but in the long run as more money enter to get arbitrage , currency will depraciate to an equilibrium return worldwide
i hope the question is specific then in terms of the time period they r looking at. thanks
they will list if IRP hold