Suppose the Domestic Interest Rate Is 10%, the Foreign Interest

Multiple Choice

Suppose the domestic interest rate is 10%, the foreign interest rate is 12%, and the domestic currency is expected to appreciate by 4%. We should expect to see

A) a capital inflow and a reduction in the foreign interest rate
B) a capital inflow and a reduction in the domestic interest rate
C) a capital outflow and a reduction in the foreign interest rate
D) a capital outflow and an increase in the domestic interest rate
E) a capital outflow and an increase in the foreign interest rate