Explain why a comparison between the interest rates on domestic ...

[Cooldude101]

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

[ebenov]

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]

Wow, this really help

[Liddy]

Thanks for the timely response, appreciate it