According to interest rate parity, if the interest rate is 1 percent in the European Union and the euro is expected to appreciate 3 percent, the comparable interest rate in the United States will be

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According to interest rate parity, the interest rate differential between two countries should equal the expected difference in their exchange rates. If the interest rate is 1 percent in the EU and the euro is expected to appreciate 3 percent, the total return to investment in the EU would be 4 percent (1% + 3% = 4%). Therefore, the comparable interest rate in the United States would also need to be 4 percent to achieve interest rate parity. Thus, the answer is B) 4 percent.

According to Interest Rate Parity, If the Interest Rate Is