Suppose that the UIP holds. If the U.S. interest rate is 9% and the eurozone interest rate is 5%, then in the short run we would expect:
a) the dollar to appreciate approximately by 4%
b) the dollar to depreciate approximately by 4%
c) the dollar to appreciate by 14%
d) insufficient information is provided
Ans: b) the dollar to depreciate approximately by 4%
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