Q. Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the (Solved)
1. U.S. dollar depreciates by 2 percent a year.
2. U.S. dollar appreciates by 2 percent a year.
3. U.K. pound depreciates by 2 percent a year.
4. None of the above answers is correct because interest rate parity requires that the interest
- a. U.S. dollar depreciates by 2 percent a year.