If uncovered interest rate parity holds and tthe U.S.interest rate is greater than the European interest rate, then it must be true that

	a.	the forward exchange rate ($ per Euro) is greater than the spot rate
	b.	the spot exchange rate rate is less than the expected exchange rate
	c.	the spot exchange rate is greater than the expected exchange rate
	d.	the forward exchange rate ($per Euro) is less than the spot rate

10 points

QUESTION 2

Consider a graph showing the relationship between the expected return to investing (vertical axis)and the spot exchange rate (horizontal axis). Which of the following will shift the foreign return curve upwards?

	a.	A decrease in the domestic interest rate
	b.	An increase in the foreign interest rate
	c.	All of the above
	d.	None of the above

10 points

QUESTION 3

Which of the following theories explains the determination of the forward exchange rate?

	a.	Covered interest rate parity
	b.	Uncovered interest rate parity
	c.	Quantity theory of money
	d.	Relative purchasing power parity