Assume that the interest parity condition holds. If the domestic interest rate is 4% and the foreign interest rate is 8% then given this information, we would expect that:
A) individuals will only hold domestic bonds.
B) the domestic currency is expected to appreciate by 4%.
C) the foreign currency is expected to appreciate by 4%.
D) the domestic currency is expected to depreciate by 4%.
E) individuals will only hold foreign bonds.

Question

Quizplus · Accepted Answer

The Answer of Assume that the interest parity condition holds. If the domestic interest rate is 4% and the foreign interest rate is 8% then given this information, we would expect that:
A) individuals will only hold domestic bonds.
B) the domestic currency is expected to appreciate by 4%.
C) the foreign currency is expected to appreciate by 4%.
D) the domestic currency is expected to depreciate by 4%.
E) individuals will only hold foreign bonds.

Assume That the Interest Parity Condition Holds