Assume That the Interest Parity Condition Holds

Multiple Choice

Assume that the interest parity condition holds. If the domestic interest rate is 12% and the foreign interest rate is 9% then given this information, we would expect that:

A) the foreign currency is expected to depreciate by 3%.
B) the domestic currency is expected to depreciate by 3%.
C) individuals will only hold foreign bonds.
D) individuals will only hold domestic bonds.
E) the domestic currency is expected to appreciate by 3%.