If US Interest Rates Are Expected to Be 6 Percent Next

Multiple Choice

If U.S. interest rates are expected to be 6 percent next year, European interest rates are expected to be 4 percent next year, and the spot rate between the euro and dollar is $1.30, then according to interest rate parity, we would expect the dollar to _________ against the euro from $1.30 to __________.

A) appreciate, $1.275
B) appreciate, $1.325
C) depreciate, $1.275
D) depreciate, $1.3256