Question 3 of 15

Which of the following statements is/are correct?

1. financial investors, domestic or foreign, go for the highest expected rate of return.

2. By using the interest parity equation and by assuming that the expected exchange rate changes, a relationship between the domestic interest rate and the nominal exchange rate can be derived.

3. A positive relationship exists between the domestic interest rate and the nominal exchange rate.

• A.Only 1 and 2
• B.Only 1 and 3
• C.Only 1
• D.Only 2 and 3
• E.1, 2 and 3