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123654777

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Is a depreciation of the dollar/euro exchange rate correlated with a decrease in the dollar return on U.S. deposits?
 
  What will be an ideal response?

Question 2

When a multinational affiliate replicates elements of a production process in a foreign country it is called ________ foreign direct investment.
 
  A) vertical
  B) horizontal
  C) transitional
  D) bisectional
  E) direct



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kaylee05

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Answer to Question 1

No.
Assume that the Interest Parity is maintained, i.e.,
R = + ( - )/
Holding constant, one would expect a depreciation of the dollar/euro exchange rate (i.e. increase in ) to be correlated with a decrease in R, dollar returns on euro deposits. However, the higher expected inflation in the U.S. implies an increase in the , the expected future dollar to euro exchange rate. Thus, the quantity ( - )/ goes up and, increases despite a depreciation in the current dollar to euro exchange rate, .

Answer to Question 2

A




123654777

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Reply 2 on: Jun 30, 2018
Thanks for the timely response, appreciate it


LegendaryAnswers

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Reply 3 on: Yesterday
Excellent

 

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