If interest rates are higher in Italy than in the United States,US investors can earn a higher expected return by investing in Italian bonds unless the euro is expected to:

Question

Quizplus · Accepted Answer

If the euro is expected to depreciate against the dollar, then even though the interest rates are higher in Italy, the potential gain from investing in Italian bonds will be offset by the expected decrease in the value of the euro. Therefore, US investors would not earn a higher expected return in this scenario.

If Interest Rates Are Higher in Italy Than in the United