If the expected future spot exchange rate value of the foreign currency decreases, with the interest rate differential unchanged, the current spot exchange rate value of the domestic currency:
A)increases.
B)decreases.
C)remains unchanged.
D)overshoots.

Question

Quizplus · Accepted Answer

If the expected future spot exchange rate value of the foreign currency decreases, it implies that the foreign currency is expected to weaken or the domestic currency is expected to strengthen in the future. This expectation would lead to an immediate increase in the demand for the domestic currency, causing its current spot exchange rate value to increase.

If the Expected Future Spot Exchange Rate Value of the Foreign