The efficient markets condition implies that
1. the domestic interest rate will equal
the foreign interest rate plus a foreign exchange risk premium.
2. the forward discount on the domestic
currency will equal the expected rate of depreciation of that currency
in terms of foreign currency if there is no foreign exchange risk.
3. the domestic interest rate will equal the
foreign interest rate plus the expected rate of depreciation of the
domestic currency if there is no foreign exchange risk.
4. both options 2 and 3 are true.
Choose the correct option.