Question

The condition which states that the domestic interest rate equals the foreign interest rate minus the expected appreciation of the domestic currency is called ______.

Answer 1

Answer:

The condition which states that the domestic interest rate equals the foreign interest rate minus the expected appreciation of the domestic currency is called Interest Rate parity

Explanation:

The interest rate parity condition explains the relationship between domestic  and foreign interest rates, and also factoring in alongside the appreciation of the home or domestic currency.

Interest rate parity condition states that the difference in interest rate between two countries will be equal to the difference between their forward exchange rate and their spot exchange rate.

Therefore in very simple terms, interest rates are linked to exchange rates