Suppose hypothetically that the interest rate on Euro Deposits was 7% and the interest rate on U.S. Dollar Deposits was 5%, and the value of the dollar relative to the Euro is expected to appreciate by 4% in the future. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

4 percent appreciation in the U.S. dollar implies a 4% depreciation in the Euro, so the expected return on Euro Deposits will be 7% - 4% = 3%.

Suppose Hypothetically That the Interest Rate on Euro Deposits Was