Question

If the foreign currency is anticipated to appreci:ate with respect to the domestic currency and the relative purchasing power parity condition is satisfied, then

Accepted Answer

A)  people expect higher inflation in the foreign nation than in the domestic nation. 
B)  people expect higher inflation in the domestic nation than in the foreign nation. 
C)  people anticipate that uncovered interest parity will hold true. 
D)  people anticipate that covered interest parity will hold true.

Exam 8: The Power of Arbitrage: Purchasing Power and Interest Rate Parities

If the foreign currency is anticipated to appreci:ate with respect to the domestic currency and the relative purchasing power parity condition is satisfied, then