Using the UIP Equation, What Would Happen to the Spot

question 126

Multiple Choice

Using the UIP equation, what would happen to the spot rate for euros if the dollar-euro exchange rate is expected to appreciate in the future?

• A) The spot rate to purchase euros would rise (dollar depreciation).
• B) The spot rate to purchase euros would fall (dollar appreciation).
• C) The spot rate to purchase euros would remain unchanged.
• D) The spot rate to purchase euros would remain unchanged today, but rise in the future (dollar depreciation).

---

Definitions:

Capital Gain Distributions

Payments made to mutual fund shareholders from the fund's sale of securities that result in a capital gain.

Income Distributions

Income distributions refer to the payment of earnings, interests, dividends, or other income, from an investment or fund to its shareholders or investors.

Rate of Return

The positive or negative return on an investment over a given period, measured as a percentage of the investment's initial price.

Global Funds

Mutual funds that invest in companies located anywhere in the world, including the investor’s own country.