Question 3(a) Indicate whether the statement is true, false, or uncertain and explain why.1. If there is free capital mobility between the United States and Germany, thendollar deposits in New York and Frankfurt should have the same interest rate.2. If uncovered interest rate parity holds, then returns to carry trade will be zero onaverage but not necessarily period-by-period.3. The interest rate in Japan is 0 percent and the interest rate in the United Statesis 1.75 percent. There is clearly an arbitrage opportunity, as one can becomeinfinitely rich without taking any risk by borrowing in yen and investing in dollars.4. If the dollar is selling at a discount in the forward market, F/E < 1, we shouldexpect the dollar to depreciate, E¿E+1/E¿ > 1, where & denotes the spot exchangerate (dollar price of foreign currency), F, is the forward exchange rate, and Eţ isthe expectations operator conditional on information available to speculators inperiod t.

(a) Indicate whether the statement is true, false, or uncertain and explain why. 1. If there is free capital mobility between the United States and Germany, then dollar deposits in New York and Frankfurt should have the same interest rate.

(a) Indicate whether the statement is true, false, or uncertain and explain why. 1. If there is free capital mobility between the United States and Germany, then dollar deposits in New York and Frankfurt should have the same interest rate.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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