Question 3 (a) State the uncovered interest rate parity condition. (b) Consider an open economy with a domestic interest rate of i, = 3%, a nominal exchange rate between the domestic and foreign economy of E, = 2, and where the foreign interest rate is 1 = 2%. In this case according to the "interest rate parity" what is the markets expectation of the future exchange rate ES? (c) Consider an open economy with a domestic interest rate of i, = 5%, a nominal exchange rate between the domestic and foreign economy of E, = 1, and where the foreign interest rate is 1 = 10%. Calculate the expected appreciation or depreciation of the domestic currency according to the theory of "uncovered interest rate parity." (d) Suppose i = 4%, i* = 2%, and that the domestic currency is expected to depreciate by 3% during the coming year. Given this information, would you expect individuals to hold only domestic bonds or only foreign bonds? Explain Hint: using the simple or approximation form of the uncovered interest rate parity condition is easier