Assume that the interest parity holds and that the dollar is expected to depreciate against the pound.Given this information,we know that
A)U)S. and U.K. interest rates are equal.
B)the U.S. interest rate exceeds the U.K. interest rate.
C)the U.K. interest rate exceeds the U.S. interest rate.
D)individuals will prefer to hold U.S. bonds because the U.S. interest rate exceeds the U.K. interest rate.
E) none of the above

Question

Quizplus · Accepted Answer

When the dollar is expected to depreciate against the pound, interest rate parity suggests that the U.S. interest rate must be higher than the U.K. interest rate to compensate for the expected loss in the value of the dollar relative to the pound.

Assume That the Interest Parity Holds and That the Dollar