Suppose two corporate bonds with similar risk pay different rates of return. The process of arbitrage should:
A. not affect their rates of return.
B. increase the return on the asset with the higher rate of return as the demand for it
increases.
C. increase the gap between the two rates of return.
D. eventually equalize their rates of return.
D. eventually equalize their rates of return.
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People who run their own businesses
A) can keep their labor costs down by not hiring any employees. B) have lower labor costs if they dislike working for anyone else than if they don't mind working for others. C) have no labor costs unless the business is incorporated. D) have the same labor costs as people who hire employees to run their businesses.
A spot contract is a(n):
a. promise to purchase a foreign currency in 30 days. b. promise to purchase a foreign currency in 90 days. c. contract for the immediate exchange of currencies. d. agreement to sell currencies at a fixed price indefinitely.
Contractionary monetary policy affects domestic income in a way that causes:
A. a fall in the value of the dollar. B. output to rise. C. exports to fall. D. imports to fall.
A moral hazard situation arises in the lender of last resort function because:
A. a central bank finds it difficult to distinguish illiquid from insolvent banks. B. a central bank usually undervalues the assets of a bank in a crisis. C. a central bank usually will only make a loan to a bank after it becomes insolvent. D. the central bank is the first place a bank facing a crisis will turn.