Flexible exchange rates, it was once thought. would bring more stability to the market. Instead. volatility and large uctuations exist. If investors expected a decrease of 5% in interest rates for 3 years, but rates were only decreased 2% for years 2 and 3, an appreciation would occur. In a exible exchange rate regime, domestic and foreign interest rates are in parity. The central bank decides to reduce the current domestic interest rate from 6.00% to 3.50% for one year. The current exchange rate {rounded to the nearest percent) then decreases to In a market with an unchanged current exchange rate where the interest parity condition holds, if investors now expect the exchange rate to be 7.50% lower a year from now, the return on foreign bonds with an interest rate of 3.25% would be %. (Enter your response rounded to two decimal places.) An increase in the domestic interest rate relative to the foreign interest rate leads to O A. ination O B. an appreciation O C. a depreciation O D. deation