Consider the following: an investor in the U.S. is pondering a one-year investment. She can purchase a domestic bond for $1,000 that has an interest rate of i or she can purchase a bond in England for 1,500 British pounds (£) that pays an interest rate of if. The current exchange rate is $1.50/£ . She considers the bonds to be of equal risk. If i = if, the expected returns are not equal. What do you know?
A. The exchange rate must be flexible
B. Arbitrage doesn't work
C. The bonds initially sold for different prices
D. The exchange rate is fixed between the U.S. and Britain
Answer: A
You might also like to view...
Which of the following statements is correct?
A. Saving is high in less developed nations because the opportunities for consumption are limited B. For developing nations, the annual rate of population increase is about 5 percent C. Most of the labor forces of developing nations are engaged in light industrial production D. Investment is low in developing nations, making it difficult to increase productivity and incomes
Lucy invested $10,000 at the rate of 12%. According to the rule of 72, it would take ______ years for her money to double
a. 4 b. 5 c. 6 d. 7
Which of the following statements is true?
a. Economic profit equals accounting profit minus implicit costs. b. The short run is any period of time in which there is at least one fixed input. c. A fixed input is any resource for which the quantity cannot change during the period under consideration. d. In the long run there are no fixed costs. e. All of these.
An example of a resource
What will be an ideal response?