Which of the following statements about exchange rate relationships are TRUE? 1. If the United States currently has a higher one-year risk-free nominal interest rate than Australia, the AUD/USD spot exchange rate would be expected to decrease over the next year. 2. If the United States has a lower rate of inflation than Australia, the forward AUD/USD exchange rate would be expected to be lower than the spot AUD/USD exchange rate.
Added by Karen N.
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The statement is based on the concept of interest rate parity, which suggests that the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate. However, it doesn't necessarily mean Show more…
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