Assume That the Interest Parity Condition Holds and That Individuals

question 17

Multiple Choice

Assume that the interest parity condition holds and that individuals expect the Australian dollar to appreciate by 5% during the coming year. Given this information, we know that:

• A) i > i*.
• B) the interest rate differential between the two countries is less than 5%.
• C) i < i*.
• D) individuals will only hold foreign bonds.
• E) i = i*.

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