The Figure Given Below Depicts the Foreign Exchange Market for British

question 48

Multiple Choice

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Assume a one year U.S. bond pays 4.0% interest and a similar U.K. bond pays 5.2% interest. Which of the following changes will establish interest rate parity?

• A)The British pound would be expected to appreciate by 1.2% against the U.S. dollar.
• B)The U.S. dollar would be expected to depreciate by 1.2% against the British pound.
• C)The British pound would be expected to depreciate by 1.2% against the U.S. dollar.
• D)The British pound would be expected to appreciate by 9.2% against the U.S. dollar.
• E)The U.S. dollar would be expected to appreciate by 9.2% against the British pound.

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