Imagine that everyone in the world pays a tax of percent on interest earnings and on any capital gains due to exchange rate changes. How would such a tax alter the analysis of the interest paritycondition?

A.

The interest parity condition will become (1)R$=R+Ee$/E$//E$/.

B.

The interest parity condition will become R$=R+(1)Ee$/E$//E$/.

C.

The interest parity condition will become R$=(1)R+Ee$/E$//E$/.

D.

The interest parity condition will be unchanged R$=R+Ee$/E$//E$/.

Now suppose that the tax applies to interestearnings, but capital gains are untaxed. How would we have to modify the interest paritycondition?

A.

The interest parity condition will become R$=R+Ee$/E$//(1)E$/.

B.

The interest parity condition will become (1)R$=R+Ee$/E$//E$/.

C.

The interest parity condition will become R$=(1)R+Ee$/E$//E$/.

D.

The interest parity condition will become R$=R+(1)Ee$/E$//E$/.