What would you expect to occur if the rate of expected inflation in Canada is considerably lower than expected inflation in Germany?
A)The expected spot rate of DM/$will increase.
B)The current spot rate of DM/$will increase.
C)The Dollar should appreciate against the DM.
D)The Dollar should depreciate against the DM.

Question

Quizplus · Accepted Answer

When expected inflation is lower in Canada than in Germany, investors would find Canadian assets more attractive, leading to an appreciation of the Canadian dollar against the German mark (DM), as the purchasing power of the Canadian dollar increases relative to the DM.

What Would You Expect to Occur If the Rate of Expected