Author Question: All of the following actions were taken by the Thai government to help Thailand maintain its peg ... (Read 142 times)

tuffie · **on:** Jun 29, 2018

All of the following actions were taken by the Thai government to help Thailand maintain its peg against the dollar in the 1990s except

A) imposing restrictions on exports to the United States to prevent too many dollars from entering the economy.
B) borrowing dollars from the International Monetary Fund in exchange for baht.
C) increasing domestic interest rates to attract more foreign investors.
D) buying baht on the foreign exchange market to support higher demand for the baht.

Question 2

Suppose you choose an investment that has historically generated an averagenominal return of 5 percent per year. Explain how inflation and risk may affect your future real rate of return on this investment.

What will be an ideal response?

ergserg · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

Inflation reduces the buying power of money. Any appreciation in the value of the final balance will need to be adjustedto account for rising prices. In other words, if the prices of goods and services increase during the holding period, the real rate of return on the initial investment is lower than the nominal rate of return.The real rate of return is the nominal rate of return minus the inflation rate.
Risk implies that the return on the investment is not guaranteed. Sothe rate of return that you experience may be greater or lower than the historical average rate of return.
A-head: INVESTMENT RETURNS
Concept: Inflation, risk