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

Question

Quizplus · Accepted Answer

If the expected inflation rate in the U.S. is lower than in Germany, the purchasing power of the dollar is expected to decrease less than that of the euro, leading to an appreciation of the dollar against the euro.

What Would You Expect to Occur If the Rate of Expected