Answer True or False.

Briefly explain your answer. No credit without explanation. Support your answer with a graph if needed.

a. Depreciation of the domestic currency today (i.e. EH/F in class) lowers the expected rate of return on foreign currency deposits.

b If there is a decrease in the expected future level of the dollar/euro rate (i.e. E/e goes down) then at unchanged interest rates, today’s dollar/euro exchange rate will also go down.

c The Fisher Effect states that, all else equal, a rise in a country’s expected inflation rate will eventually cause an equal increase in the interest rate that deposits of its currency offer.