What is interest rate parity and what happens when this condition doesn't hold?
What will be an ideal response?
Interest rate parity occurs when, for risk-free transactions, the rate of return earned by a unit of currency is the same in different nations. If the rate of return for the U.S. dollar is higher than that for, say, the Japanese yen, interest rate parity does not hold. In this case people will expect the value of the dollar to fall against the yen (that is, the U.S. dollar is expected to depreciate over time) so that interest rate parity is restored because the rate of return earned by a unit of currency is the same in both nations.
3 What makes an exchange rate hard to predict?
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Refer to the scenario above. Which of the following is true?
A) Both the workers should specialize in the production of Good Y. B) Worker 1 should produce Good Y and Worker should produce Good X. C) Worker 1 should produce Good X and Worker should produce Good Y. D) Both the workers should specialize in the production of Good X.
Any output combination outside the production possibilities curve is attainable in the current period only if prices decrease
a. True b. False Indicate whether the statement is true or false
What is convergence hypothesis? Why should we expect convergence in the long run?
What will be an ideal response?
Suppose the demand for a product is lnQxd = 12 ? 3 ln Px. Then product x is:
A. unitary elastic. B. elastic. C. inelastic. D. It cannot be determined without more information.