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

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If people expect the U.S. dollar to depreciate by 4 percent, it offsets the higher interest rate in the U.S. (7 percent) compared to the UK (3 percent), equalizing the return on investments in both currencies. This is based on the concept of interest rate parity in international finance.

Suppose a British Bank Offers a 3 Percent Interest Rate