Interest Rate Effects in the United States
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If interest rates are higher in Italy than in the United States, the market expects that the lira will:
A) appreciate against the dollar.
B) depreciate against the dollar.
C) offer a higher real rate of return than the dollar.
D) be selling at a forward discount.
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Solution Summary
Logic and rule given to support choice of answer to the interest rate effects in the United States is provided.
Solution Preview
Interest parity says
e1/e0 = (1+rd)/(1+rf)
Where
e1= future exchange rate (in terms of ...
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