Question
The nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries and that purchasing-power parity holds.
What can you infer about expected change in the exchange rate between the Canadian dollar and the U.S. dollar?
What can you infer about expected change in the exchange rate between the Canadian dollar and the U.S. dollar?