Suppose U.S. interest rates are expected to be 6 percent next year, European interest rates are expected to be 4 percent next year, and the spot rate is currently USD 1.0830 per 1 euro. According to interest rate parity, should we expect the dollar to appreciate or depreciate against the euro? What would be the forecasted spot rate next year? (Show your work.)

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11-07-2024
Mathematics

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Suppose U.S. interest rates are expected to be 6 percent next year, European interest rates are expected to be 4 percent next year, and the spot rate is currently USD 1.0830 per 1 euro. According to interest rate parity, should we expect the dollar to appreciate or depreciate against the euro? What would be the forecasted spot rate next year? (Show your work.)

Sagot :

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