(2) The currencies of countries with high interest rates are bound to be discounted in the forward foreign exchange market, and the currencies of countries with low interest rates are bound to be at a premium in this market. If the domestic interest rate is higher than the international interest rate, funds will flow into China to make a profit.
(3) When offsetting the interest rate parity, the arbitrageur should not only consider the interest rate income, but also consider the income change caused by the exchange rate change.
Conclusion: On the premise that capital has sufficient international liquidity, whether there is offsetting interest rate parity tells us that if the domestic interest rate rises beyond the level required by interest rate parity, the local currency will be expected to depreciate. On the contrary, it will appreciate.