Assume That the Interest Parity Condition Holds and That Both

question 48

Multiple Choice

Assume that the interest parity condition holds and that both the expected exchange rate and the foreign interest rate are constant. Given this information, a decrease in the domestic interest rate will cause:

• A) a decrease in the current exchange rate.
• B) a decrease in the exchange rate expected in the future.
• C) greater appreciation of the domestic currency expected in the future.
• D) an increase in the current exchange rate.
• E) greater depreciation of the domestic currency expected in the future.

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Definitions:

Rationalization

Involves the process of replacing traditional and emotional thought with reason and practicality, often in the context of bureaucracies or societies becoming increasingly governed by logic and efficiency.

Separatism

The advocacy or practice of separation of a certain group of people from a larger body on the basis of ethnicity, religion, or gender.

Born In

Generally refers to the place or circumstances of one's birth, highlighting the origin.

Percent

A mathematical term representing a part of a whole divided by 100, used to describe proportions, ratios, or comparisons.