The Next Questions Refer to the Following

question 16

Multiple Choice

The next questions refer to the following.
Suppose currency traders expect that one year from now, £1 will be worth $1.50, and the one-year risk-free interest rate in the UK is 7% while the one-year risk-free rate in the US is 3%.
-Suppose American prices are twice as high as British prices,but there is no inflation occurring or expected in either country. In the short run,the US interest rate is 10% and the British interest rate is 5%. Then on the spot market,according to UIP,

• A) £1 = $0.60 and the pound will depreciate to $0.50
• B) £1 = $2.10 and the pound will depreciate to $2.00
• C) £1 = $1.91 and the pound will appreciate to $2.00
• D) £1 = $2.05 and the pound will depreciate to $2.00
• E) £1 = $0.45 and the pound will appreciate to $0.50

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Definitions:

Full Emancipation

The act or process of freeing someone from legal, social, or political restrictions, most commonly used in the context of abolishing slavery.

Temperance Movement

A social movement aimed at reducing or banning the consumption of alcoholic beverages.

Criticisms

Expressions of disapproval based on perceived faults or mistakes.

Tappan Brothers

Arthur and Lewis Tappan were American abolitionists who played a significant role in the fight against slavery and the formation of the American Anti-Slavery Society.