Multiple Choice Questions on If the interest rate is higher in the US than in the UK then ........ for SEBI Grade A ( Officer) Exam Preparation

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Multiple Choice Questions

If the interest rate is higher in the US than in the UK then ........

Economics- Phase (I & II) Investment Function 
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    If the interest rate is higher in the US than in the UK, then 

     The dollar is expected to appreciate with respect to the pound.

    Incorrect Answer

    The pound is expected to appreciate with respect to the dollar.

    Correct Answer

     The interest rate in the US is expected to increase.

    Incorrect Answer

    The interest rate in the US is expected to decrease.

    Incorrect Answer

     Uncertain.

    Incorrect Answer
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    Explanation:

     Uncovered interest rate parity implies that:

     So if 1( + iUS ) > 1( + iUK ) , then Eet+1/ Et has to be greater than 1. So, we expect the dollar to depreciate, or the pound to appreciate with respect to the dollar.

    By: Jyoti Das
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