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Author Question: If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then A) an ... (Read 197 times)

kfurse

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on: Jun 30, 2018
If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then
 
  A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent.
  B) an investor should invest only in euros if the expected dollar depreciation against the euro is 8 percent.
  C) an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 8 percent.
  D) an investor should invest only in dollars.
  E) an investor should invest only in euros.

Question 2

Explain how BOP disequilibrium is restored under
 
  (a) flexible exchange rates.
   (b) fixed exchange rates, after you define what a BOP disequilibrium means.


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leahchrapun

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

B

Answer to Question 2

(a) It is restored by exchange rate changes causing traded good price changes.
(b) By allowing a devaluation or using trade restrictions or else central banks must finance deficits.


kfurse

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

amcvicar

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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