FX Market Expected 0.15 return Equilibrium: when the domestic dollar return equals the expected foreign dollar return, uncovered interest parity holds. 0.10 (1.16,0.085) Domestic return, (1.18,0.067) is - 5% (1.20,0.05) 0.05 DR (1.24,0.017) (1.224,0.03) 3 FR 0.00 Foreign return, i - 3%, Eye - 1.224. -0.05 1.16 1.18 1.20 1.22 1.24 Today's dollar/euro spot exchange rate, Es/e