Question

Suppose that the Home interest rate equals 2.1% and the Foreign interest rate equals 1.8%. How much is the expected Home appreciation? (Round to one decimal place.)

Answer 1

The above solution is a proof for the below fact:

Other things remaining constant, the currency of the economy offering higher interest rate will appreciate as compared to the economy offering a relatively lower interest rate. Further, the appreciation will approximately be equal to the difference between the two interest rates in question (here 1.8% and 2.1%).

Therefore, the home appreciation will be equal to ~0.3%.