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.
c
You might also like to view...
Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________
A) medium of exchange; transaction costs B) medium of exchange; risk C) store of wealth; transaction costs D) store of wealth; risk
Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips. Sam tends bar on Tuesday, Thursday, and Saturday and receives only tips. Which of the following represents an implicit cost of operating the bar?
a. Diane's wage b. Sam's time c. Diane's tips d. Sam's tips e. both Diane's and Sam's tips