According to the uncovered interest parity theory, bond yields on riskless euro- denominated bonds being higher than the equivalent riskless bonds denominated in dollars predicts that O O Euro-area interest rates need to stay higher than US interest rates. O The euro is going to decline in value relative to the dollar O The euro is going to increase in value relative to the dollar Euro-area interest rates will decline to go below US interest rates.

According to the uncovered interest parity theory, bond yields on riskless euro- denominated bonds being higher than the equivalent riskless bonds denominated in dollars predicts that O O Euro-area interest rates need to stay higher than US interest rates. O The euro is going to decline in value relative to the dollar O The euro is going to increase in value relative to the dollar Euro-area interest rates will decline to go below US interest rates.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 4P

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