CHAPTER 12

# The expected return on dollar deposits in terms of

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32) The expected return on dollar deposits in terms of dollars, R D , is A) always the interest rate on dollar deposits, i D , for any exchange rate. B) the interest rate on dollar deposits, i D , only when E t > E e t+1 . C) the interest rate on dollar deposits, i D , only when E t < E e t+1 . D) the interest rate on dollar deposits, i D , only when E t = E e t+1 . Answer: A 33) The condition which states that the domestic interest rate equals the foreign interest rate minus the expected appreciation of the domestic currency is called 34) In a world with few impediments to capital mobility, the domestic interest rate equals the sum of the foreign interest rate and the expected depreciation of the domestic currency, a situation known as the 35) According to the interest parity condition, the domestic interest rate is equal to 36) According to the interest parity condition, if the domestic interest rate is A) above the foreign interest rate, then there is expected appreciation of the foreign currency. B) above the foreign interest rate, then there is expected depreciation of the foreign currency. C) below the foreign interest rate, then there is expected appreciation of the foreign currency. D) below the foreign interest rate, then the interest parity condition is violated. Answer: A 157 37) According to the interest parity condition, if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent, then

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