Assume That the Interest Parity Condition Holds

question 37

Multiple Choice

Assume that the interest parity condition holds. If the domestic interest rate is 4% and the foreign interest rate is 8% then given this information, we would expect that:

• A) individuals will only hold domestic bonds.
• B) the domestic currency is expected to appreciate by 4%.
• C) the foreign currency is expected to appreciate by 4%.
• D) the domestic currency is expected to depreciate by 4%.
• E) individuals will only hold foreign bonds.

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