According to the interest parity condition if the

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38) According to the interest parity condition, if the domestic interest rate is 10 percent and the foreign interest rate is 12 percent, then A) the expected appreciation of the foreign currency must be 4 percent. B) the expected appreciation of the foreign currency must be 2 percent. C) the expected depreciation of the foreign currency must be 2 percent. D) the expected depreciation of the foreign currency must be 4 percent. Answer: C 39) When Americans or foreigners expect the return on _____ deposits to be high relative to the return on _____ deposits, there is a higher demand for dollar deposits and a correspondingly lower demand for foreign deposits. 40) When Americans or foreigners expect the return on dollar deposits to be high relative to the return on foreign deposits, there is a _____ demand for dollar deposits and a correspondingly _____ demand for foreign deposits. 41) As the relative expected return on dollar deposits increases, foreigners will want to hold more _____ deposits and less _____ deposits. 158
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42) As the relative expected return on dollar deposits increases, A) foreigners will want to hold fewer dollar deposits and more foreign deposits. B) Americans will want to hold more dollar deposits and less foreign deposits. C) Americans will want to hold fewer dollar deposits and more foreign deposits. D) Americans and foreigners will be indifferent towards holding dollar deposits or foreign deposits. Answer: B 43) An increase in the foreign interest rate shifts the expected return schedule for _____ deposits to the _____ and causes the domestic currency to depreciate. 44) A decrease in the foreign interest rate shifts the expected return schedule for _____ deposits to the _____ and causes the domestic currency to appreciate. 45) A rise in the expected future exchange rate shifts the expected return schedule for _____ deposits to the _____ and causes the domestic currency to appreciate. 46) A fall in the expected future exchange rate shifts the expected return schedule for _____ deposits to the _____ and causes the domestic currency to depreciate. A) domestic; right B) domestic; left C) foreign; right D) foreign; left Answer: C
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