Suppose a Deposit in New York Earns 6 Percent a Year

Multiple Choice

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

A) U.S. dollar appreciates by 2 percent a year.
B) U.S. dollar depreciates by 2 percent a year.
C) U.K. pound depreciates by 2 percent a year.
D) None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries.