Assume the Interest Parity Condition Holds and That Initially I

question 3

Multiple Choice

Assume the interest parity condition holds and that initially i = i*. A decrease in the foreign interest rate will cause:

• A) an increase in the demand for the domestic currency.
• B) an expected depreciation of the domestic currency.
• C) an increase in the exchange rate.
• D) All of the above.
• E) None of the above.

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