Suppose an individual firm is comparing two investments, a one year bond from a U.S. firm paying 4% or a one year bond from a German firm which is paying 6%. The current dollars-per-euro rate is 0.75, and the expected rate in one year is 0.78
If the expected rate is correct, which investment will yields a covered interest arbitrage opportunity? A) The U.S. Bond
B) The German Bond
C) They will have the same return
D) This cannot be determined from the information given.
B
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A decrease in the rental rate of capital can lead to a long run increase or decrease in the number of firms in the industry.
Answer the following statement true (T) or false (F)
How can restrictive covenants help to reduce moral hazard in bond markets?
What will be an ideal response?
The difference between a fixed tax and a variable tax is that
a. fixed taxes can never be changed, but variable taxes can be changed. b. a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact. c. a variable tax changes when GDP changes, but a fixed tax does not change with GDP. d. a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment.
Contractionary monetary policy is achieved? by:
A) decreasing the amount of bank reserves and lowering the federal funds rate.
B) decreasing the amount of bank reserves and raising the federal funds rate.
C) increasing the amount of bank reserves and lowering the federal funds rate.
D) increasing the amount of bank reserves and raising the federal funds rate.