When domestic and foreign currency bonds are imperfect ...

[Haya94]

When domestic and foreign currency bonds are imperfect substitutes, the domestic interest rate (R) can be written as
 
  A) R = R - (Ee - E)/E + .
  B) R = R - (Ee - E)/E.
  C) R = R + (Ee - E)/E + .
  D) R = R - (Ee + E)/E + .
  E) R = R - (Ee - E).

Question 2

Currently the NAFTA nations do not meet the conditions for an optimal currency area. What are the two main reasons why?
 
  What will be an ideal response?

[dpost18]

Answer to Question 1

C

Answer to Question 2

Historically Mexico's business cycle has not been correlated with the cycles in the United States and Canada; labor mobility is limited.

[Haya94]

TYSM

[ghepp]

Excellent