Uncovered Interest Rate Parity and

[gazhoo]

Hi, when the interest rate is higher in Country A than Country B…why is the currency value of Country A expected to depreciate? Isn’t this counter intuitive? I know I’m wrong but, I don’t understand this.
thanks.

 

[Cinderella]

to prevent arbitrrage.

 

[gazhoo]

It seems that it is the opposite as in the case of covered interest partiy?

 

[gazhoo]

If Country A has higher interest rates doesn’t it seem logical that the rates will induce more capital inflows therefore an appreciation of Country A currency.

 

[CMLSML]

^ Only if you are talking REAL interest rates. Nominal interest rates may be high just due to high inflation.