Hold under such asymmetric restrictions on asset holding

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Reference no: EM13838543

To derive the uncovered interest parity (UIP) condition we assume, among other things, that there is free movement of capital across countries.

But this cannot be directly applied to India because of capital controls. While foreigners are relatively free to hold Indian assets, Indians are in general forbidden to hold foreign assets.

Is there a variant of the UIP that we can expect to hold (given the other assumptions) under such asymmetric restrictions on asset holding?

Reference no: EM13838543

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