Suppose, for Whatever Reason, Real Interest Rates in the United

question 56

Multiple Choice

Suppose, for whatever reason, real interest rates in the United States are projected to fall and real interest rates in Europe are projected to remain flat and suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

• A)rise to (perhaps).9 euros/dollar.
• B)fall to (perhaps).6 euros/dollar.
• C)cause the exchange rate to have to be expressed in dollars per euro (because the other way would no longer make sense).
• D)remain unchanged.

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