Is a depreciation of the dollar/euro exchange rate correlated ...

[123654777]

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

[kaylee05]

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]

Thanks for the timely response, appreciate it

[phuda]

YES! Correct, THANKS for helping me on my review