If US Interest Rates Are Expected to Be 6 Percent Next

question 127

Multiple Choice

If U.S. interest rates are expected to be 6 percent next year, European interest rates are expected to be 4 percent next year, and the spot rate between the euro and dollar is $1.30, then according to interest rate parity, we would expect the dollar to _________ against the euro from $1.30 to __________.

• A) appreciate, $1.275
• B) appreciate, $1.325
• C) depreciate, $1.275
• D) depreciate, $1.3256

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Definitions:

Parasympathetic

The branch of the autonomic nervous system that conserves energy as it slows the heart rate, increases intestinal and gland activity, and relaxes sphincter muscles.

Forebrain

The anterior part of the brain that includes the cerebral hemispheres, thalamus, and hypothalamus, important for complex behaviors, emotion, memory, and thought.

Cerebellum

A region of the brain that plays a significant role in motor control, and also contributes to cognitive functions such as attention and language.

Corpus Callosum

A wide band of neural fibers beneath the cortex in the human brain, facilitating communication between the two hemispheres.