QUESTION 13.6 The covered and uncovered interest parity condition constitutes a powerful tool to predict exchange rate movements. The following is a list of a number of events. Predict with the covered or uncovered interest parity condition what will happen with the euro/US dollar spot exchange rate.

13.6A The US Federal Reserve announces that the discount rate will be lowered.

13.6B GDP fgures of the euro area turn out to be better than expected, raising expectations that the European economy is coming sooner out of its slump.

13.6C The ECB president hesitates before he says ‘strong euro’.

13.6D Most large US companies unexpectedly raise their proft prospects.