Assume that the interest parity condition holds and that both the expected exchange rate and the foreign interest rate are constant. Given this information, a decrease in the domestic interest rate will cause:
A) a decrease in the current exchange rate.
B) a decrease in the exchange rate expected in the future.
C) greater appreciation of the domestic currency expected in the future.
D) an increase in the current exchange rate.
E) greater depreciation of the domestic currency expected in the future.

Question

Quizplus · Accepted Answer

The Answer of Assume that the interest parity condition holds and that both the expected exchange rate and the foreign interest rate are constant. Given this information, a decrease in the domestic interest rate will cause:
A) a decrease in the current exchange rate.
B) a decrease in the exchange rate expected in the future.
C) greater appreciation of the domestic currency expected in the future.
D) an increase in the current exchange rate.
E) greater depreciation of the domestic currency expected in the future.

Assume That the Interest Parity Condition Holds and That Both