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)
Ans: b. The spot rate to purchase euros would fall (dollar appreciation).
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