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Suppose that U.S. interest rates are 4 percent more than rates in the European Union. Would you expect the dollar to appreciate or depreciate against the euro, and by how much? OA. It would be expected that the dollar would appreciate by 4 percent. OB. It would be expected that the dollar would depreciate by less than 4 percent. C. It would be expected that the dollar would depreciate by 4 percent. OD. It would be expected that the dollar would appreciate by less than 4 percent. Suppose that U.S. interest rates are 4 percent more than rates in the European Union. If the forward and spot rates are the same, which direction would you expect financial capital to flow? O A. O B. Capital would flow to the European Union, increasing the demand for foreign currency and decreasing the supply of foreign currency. Capital would flow to the United States, increasing the demand for foreign currency and decreasing the supply of foreign currency. c. Capital would flow to the United States, decreasing the demand for foreign currency and increasing the supply of foreign currency. O D. Capital would flow to the European Union, decreasing the demand for foreign currency and increasing the supply of foreign currency.

Suppose that U.S. interest rates are 4 percent more than rates in the European Union. Would you expect the dollar to appreciate or depreciate against the euro, and by how much? OA. It would be expected that the dollar would appreciate by 4 percent. OB. It would be expected that the dollar would depreciate by less than 4 percent. C. It would be expected that the dollar would depreciate by 4 percent. OD. It would be expected that the dollar would appreciate by less than 4 percent. Suppose that U.S. interest rates are 4 percent more than rates in the European Union. If the forward and spot rates are the same, which direction would you expect financial capital to flow? O A. O B. Capital would flow to the European Union, increasing the demand for foreign currency and decreasing the supply of foreign currency. Capital would flow to the United States, increasing the demand for foreign currency and decreasing the supply of foreign currency. c. Capital would flow to the United States, decreasing the demand for foreign currency and increasing the supply of foreign currency. O D. Capital would flow to the European Union, decreasing the demand for foreign currency and increasing the supply of foreign currency.

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter11: Foreign Exchange, Trade, And Bubbles
Section: Chapter Questions
Problem 7MC
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Suppose that U.S. interest rates are 4 percent more than rates in the European Union. Would you expect the dollar to appreciate or depreciate against the euro, and by how much? A. It would be expected that the dollar would appreciate by 4 percent. B. It would be expected that the dollar would depreciate by less than 4 percent. C. It would be expected that the dollar would depreciate by 4 percent. D. It would be expected that the dollar would appreciate by less than 4 percent. Suppose that U.S. interest rates are 4 percent more than rates in the European Union. If the forward and spot rates are the same, which direction would you expect financial capital to flow? A. Capital would flow to the European Union, increasing the demand for foreign currency and decreasing the supply of foreign currency. B. Capital would flow to the United States, increasing the demand for foreign currency and decreasing the supply of foreign currency. C. Capital would flow to the United States, decreasing the demand for foreign currency and increasing the supply of foreign currency. D. Capital would flow to the European Union, decreasing the demand for foreign currency and increasing the supply of foreign currency.
Transcribed Image Text:Suppose that U.S. interest rates are 4 percent more than rates in the European Union. Would you expect the dollar to appreciate or depreciate against the euro, and by how much? A. It would be expected that the dollar would appreciate by 4 percent. B. It would be expected that the dollar would depreciate by less than 4 percent. C. It would be expected that the dollar would depreciate by 4 percent. D. It would be expected that the dollar would appreciate by less than 4 percent. Suppose that U.S. interest rates are 4 percent more than rates in the European Union. If the forward and spot rates are the same, which direction would you expect financial capital to flow? A. Capital would flow to the European Union, increasing the demand for foreign currency and decreasing the supply of foreign currency. B. Capital would flow to the United States, increasing the demand for foreign currency and decreasing the supply of foreign currency. C. Capital would flow to the United States, decreasing the demand for foreign currency and increasing the supply of foreign currency. D. Capital would flow to the European Union, decreasing the demand for foreign currency and increasing the supply of foreign currency.
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