Suppose the 12-month interest rate on a U.S. Treasury bill is 16 percent, and the one-year interest rate on a comparable British Treasury bill is 6 percent. The exchange rate today is $2.00 per pound. What must be the expected exchange rate at maturity for interest rate parity to hold?
a. $1.00 = 0.50 pound
b. $1.00 = 0.75 pound
c. 1 pound = $2.20
d. 1 pound = $1.80
e. 1 pound = $2.50
c
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The nation's structural unemployment will increase when
A) bad economic policies send the economy into a recession. B) there is influx into the labor market of new college graduates. C) there is an increase in post-Christmas layoffs of workers. D) an increase in textile imports displaces older textile workers who do not have the skills necessary to find new jobs.
The table above lists the market shares of the twenty makers of personal computers. The four-firm concentration ratio tells us that
A) the four largest firms have 20 percent of the market. B) there are no barriers to entry in this market. C) the firms sell differentiated products. D) all firms sell identical products.
To target a rate that is higher than the current interest rate, the Fed can:
A. sell government securities to reduce reserves. B. sell government securities to increase reserves. C. purchase government securities to increase reserves. D. purchase government securities to reduce reserves.
If the real exchange rate rises 4%, domestic inflation is 2%, and foreign inflation is 0%, what is the percent change in the nominal exchange rate?
A. 0% B. 6% C. 4% D. 2%