Suppose India is the home country and USA is the foreign country. The interest rates in India and USA are 6% and 4% respectively. The exchange rate of US Dollar is Rs. 80 today but is expected to rise to Rs. 84 in one year. Which of the following is true, according to the uncovered interest arbitrage parity condition?
1
Capital will flow into the Indian economy
2
Capital will flow out of the Indian economy
3
No captial flows
4
Can't say on the basis of the information provided