Question

Question 171 pts Assume the interest parity condition holds and that individuals expect the dollar to appreciate by 5% during the coming year. Given this information, we know that Group of answer choices the interest rate differential between the two countries is less than 5%. i < i*. i = i*. individuals will only hold foreign bonds.

Question 17 1 pts Assume the interest parity condition holds and that individuals expect the dollar to appreciate by 5% during the coming year. Given this information, we know that the interest rate differential between the two countries is less than 5%. i<j*. i = i*. individuals will only hold foreign bonds.

Answer 1

Interest rate parity holds and individual expects that dollar to appreciate by 5%.

It means the interest rate in the United States is less than the interest rate in a foreign country and the interest rate differential between the two countries is equal to 5%.

The interest rate in the United States is ' i '

The interest rate in foreign country is ' i* '

i.e., i < i*

Answer: Option (B)