What is the expected annual real depreciation

Reference no: EM13528723

Assume that the nominal interest rate on 10 year bonds is 10% at home and 6% abroad.
Further assume inflation is expected to be 6% at home and 3% abroad.
a. What is the expected annual real depreciation consistent with interest parity?
b. What is the expected annual nominal depreciation consistent with interest parity?
c. If you expected a nominal appreciation of the domestic currency over the next 10
years, which bond would you purchase?

Reference no: EM13528723

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