Suppose that the purchasing power parity estimate of the dollar/euro exchange rate is $1.30 per euro, and the current spot rate is $1.3 8 per euro. Comparing these two exchange rates from a long-run viewpoint you would?
Aanticipate the dollar’s exchange rate against the euro to remain constant
Banticipate the dollar to appreciate against the euro
Canticipate the dollar to depreciate against the euro
Dhave no anticipation concerning future movements in the dollar/euro exchange rate
Correct answer
B. anticipate the dollar to appreciate against the euro
Explanation
The correct answer is anticipate the dollar to appreciate against the euro.