If the dollar interest rate is 10 percent and the euro interest ...

[kfurse]

If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then
 
  A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent.
  B) an investor should invest only in euros if the expected dollar depreciation against the euro is 8 percent.
  C) an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 8 percent.
  D) an investor should invest only in dollars.
  E) an investor should invest only in euros.

Question 2

Explain how BOP disequilibrium is restored under
 
  (a) flexible exchange rates.
   (b) fixed exchange rates, after you define what a BOP disequilibrium means.

[leahchrapun]

Answer to Question 1

B

Answer to Question 2

(a) It is restored by exchange rate changes causing traded good price changes.
(b) By allowing a devaluation or using trade restrictions or else central banks must finance deficits.

[kfurse]

TYSM

[alexanderhamilton]

Excellent