Assume That the U

question 45

Multiple Choice

Assume that the U.S. interest rate is 11 percent, while Australia's one-year interest rate is 12 percent. Assume interest rate parity holds. If the one-year forward rate of the Australian dollar was used to forecast the future spot rate, the forecast would reflect an expectation of:

• A) depreciation in the Australian dollar's value over the next year.
• B) appreciation in the Australian dollar's value over the next year.
• C) no change in the Australian dollar's value over the next year.
• D) information on future interest rates is needed to answer this question.

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