Suppose a British bank offers a 3 percent interest rate while a U.S. bank offers a 7 percent interest rate. People must expect the U.S. dollar will

Question

Quizplus · Accepted Answer

Given the interest rate differential, people might expect the U.S. dollar to depreciate by the difference in interest rates (7% - 3% = 4%) to maintain interest rate parity, assuming no other changes in market conditions.

Suppose a British Bank Offers a 3 Percent Interest Rate