Assume that the uncovered interest parity condition holds.Also assume that the U.S.interest rate is greater than the U.K.interest rate.Given this information,we know that investors expect
A)the pound to depreciate.
B)the pound to appreciate.
C)the dollar-pound exchange rate to remain fixed.
D)the U.S. interest rate to fall.
E) none of the above

Question

Quizplus · Accepted Answer

When the uncovered interest parity condition holds and the U.S. interest rate is higher than the U.K. interest rate, investors expect the currency from the country with the lower interest rate (in this case, the pound) to appreciate in order to compensate for the lower interest earnings.

Assume That the Uncovered Interest Parity Condition Holds