Relationship between Interest rate and Exchange Rate | Contradictory Observation

CFA Level III Portfolio Management
#1

In currency management reading, it is mentioned that the base currency’s real exchange rate should appreciate if there is upward movement in nominal or real interest rate of the base currency. For example, INR/USD context, if the interest rate of USD goes up provided that the interest rate of India remains flat, then Rupee will depreciate. It shows a positive relationship between the interest rate of base currency and exchange rate. However, in carry trade (and uncovered interest rate parity) we have learnt that

%change in Spot rate (H/L)= iH - iL

where i L is the base currency and it shows a negative relationship between the interest rate of base currency and exchange rate.

Pls clarify me where my understanding goes wrong. TIA

#2

There is no mechanism to enforce uncovered interest rate parity, and no reason to expect it to hold.

Interest rate parity’s purpose is not to predict future exchange rates; it’s to prevent arbitrage today.