Assume That the Current Exchange Rate Between the Australian Dollar

question 2

Multiple Choice

Assume that the current exchange rate between the Australian dollar and the U.K. pound is E = 0.66. If interest parity holds, and the Australian interest rate is 5% while the U.K. interest rate is 7%, the expected exchange rate in one year is:

• A) 0.87.
• B) 0.57.
• C) 0.67.
• D) 0.47.
• E) 0.77.

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Definitions:

Idle Resources

Resources in an economy that are not being fully utilized, often leading to inefficiency.

Output

The total amount of goods and services produced by an economy or a production process.

Guns And Butter

A term used in economics to represent the trade-off between a nation's investment in defense and civilian goods.

Increasing Opportunity Cost

A situation where producing more of one good or service leads to a larger increase in foregone production of another good or service.