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Author Question: Explain why a comparison between the interest rates on domestic and foreign bonds might provide ... (Read 63 times)

Cooldude101

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on: Jun 30, 2018
Explain why a comparison between the interest rates on domestic and foreign bonds might provide misleading information about which bonds yield the highest expected returns.
 
  What will be an ideal response?

Question 2

For this question, assume that the Phillips curve equation is represented by the following equation: t - t-1 = (m + z) - ut. A reduction in the unemployment rate will cause
 
  A) a reduction in the markup over labor costs (i.e., a reduction in m).
  B) an increase in the markup over labor costs.
  C) an increase in the inflation rate over time.
  D) a decrease in the inflation rate over time.
  E) none of the above


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ebenov

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Reply #1 on: Jun 30, 2018
Answer to Question 1

A simple comparison of interest rates will ignore the expected exchange gains/losses that can occur from holding assets denominated in a foreign currency. Hence, such a comparison will likely provide incorrect information about which bonds have a higher expected return.

Answer to Question 2

D


Cooldude101

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Reply 2 on: Jun 30, 2018
YES! Correct, THANKS for helping me on my review

EAN94

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Reply 3 on: Yesterday
Gracias!

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