Suppose That the U

question 213

Multiple Choice

Suppose that the U.S. interest rate is 5 percent and the Turkish interest rate is 50 percent. The effect of this difference in the foreign exchange market is that

• A) investors expect the Turkish currency to fall in value (depreciate) against the dollar.
• B) investors expect the Turkish currency to rise in value (appreciate) against the dollar.
• C) an American investor is guaranteed to make an additional 45 percent in dollar terms by investing in Turkey.
• D) all funds flow to Turkey to get the higher interest rate.

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