Assume That the Interest Parity Condition Holds and That Individuals

Multiple Choice

Assume that the interest parity condition holds and that individuals expect the Australian dollar to appreciate by 5% during the coming year. Given this information, we know that:

A) i > i*.
B) the interest rate differential between the two countries is less than 5%.
C) i < i*.
D) individuals will only hold foreign bonds.
E) i = i*.