1. (5 pts) Define the uncovered interest parity (UIP) in terms a relation among interest rates and...
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1. (5 pts) Define the uncovered interest parity (UIP) in terms a relation among interest rates and exchange rates (write domestic interest rate on the left hand and the other components on the right-hand side). What are assumptions need to be fulfilled for the UIP to hold? In September 1993 Brazilian bonds were paying a monthly interest rate of 36.9% while US bonds paid 0.2% monthly. Why did not US investor move their investments to Brazil based the high interest rates in Brazil?
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