Multiple Choice
Assume that interest rate parity holds, and the euro's interest rate is 9% while the U.S. interest rate is 12%. Then the euro's interest rate increases to 11% while the U.S. interest rate remains the same. As a result of the increase in the interest rate on euros, the euro's forward ____ will ____ in order to maintain interest rate parity.
A) discount; increase
B) discount; decrease
C) premium; increase
D) premium; decrease
Correct Answer:
Verified
Correct Answer:
Verified
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