If in Chicago the interest rate is 5 percent a year and in Vancouver it is 4 percent a year, .

Question

Quizplus · Accepted Answer

According to the interest rate parity theory, the currency with a lower interest rate will depreciate relative to the currency with a higher interest rate. Since the interest rate in Chicago is higher than in Vancouver, it is expected that the U.S. dollar will appreciate relative to the Canadian dollar. Therefore, option B is the correct answer.

If in Chicago the Interest Rate Is 5 Percent a Year