Question: If the interest rate is expected to be 3% higher in Ireland than in the U.S. the theory of purchasing power parity would predict a

If the interest rate is expected to be 3% higher in Ireland than in the U.S.

  1. the theory of purchasing power parity would predict a drop in nominal interest rates in Ireland of approximately 3%
  2. spot exchange rates between the two countries should remain unchanged over the long run
  3. the forecasted Ireland spot exchange rate should indicate appreciation by 3%
  4. the forecasted Ireland spot exchange rate should indicate depreciation by 3%

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