An Increase in the Foreign One- Year Interest Rate Expected

question 41

Multiple Choice

An increase in the foreign one- year interest rate expected to occur in, say, two years will, all else fixed, have which of the following effects in a flexible exchange rate regime?

• A) The real exchange rate will decrease with no change in the nominal exchange rate.
• B) Both the real and the nominal exchange rate will decrease.
• C) The nominal exchange rate will decrease and the real exchange rate will increase.
• D) The nominal exchange rate will decrease with no change in the real exchange rate.
• E) No change in either the nominal or real exchange rate.

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Definitions:

Population Variance

The average of the squared differences from the Mean, representing the variance of an entire population.

Chi-Square Value

A statistic that measures the discrepancy between observed and expected frequencies in categorical data, used in hypothesis testing.

Confidence Interval

A range of values, derived from sample statistics, that is likely to contain the value of an unknown population parameter with a specified level of confidence.

Confidence Interval Estimate

A statistical range, with a certain level of confidence, that is likely to contain a population parameter.