The Figure Given Below Depicts the Foreign Exchange Market for British

Multiple Choice

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Assume a one year U.S. bond pays 4.0% interest and a similar U.K. bond pays 5.2% interest. Which of the following changes will establish interest rate parity?

A) The British pound would be expected to appreciate by 1.2% against the U.S. dollar.
B) The U.S. dollar would be expected to depreciate by 1.2% against the British pound.
C) The British pound would be expected to depreciate by 1.2% against the U.S. dollar.
D) The British pound would be expected to appreciate by 9.2% against the U.S. dollar.
E) The U.S. dollar would be expected to appreciate by 9.2% against the British pound.