Using the Relationship Between Expected Exchange Rates and Inflation Differentials

Multiple Choice

Using the relationship between expected exchange rates and inflation differentials in combination with uncovered interest parity, we find:

A) changes in inflation rates are directly related to changes in nominal interest rates.
B) changes in inflation rates are inversely related to changes in nominal interest rates.
C) changes in inflation rates are unrelated to changes in nominal interest rates.
D) changes in inflation rates are directly related to changes in real interest rates.