Why is the nominal interest rate the opportunity cost of holding ...

[kaid0807]

Why is the nominal interest rate the opportunity cost of holding money?
 
  What will be an ideal response?

Question 2

If a country's currency depreciates, the country will experience a ________ in exports and a ________ in imports.
 
  A) rise; rise B) fall; fall C) rise; fall D) fall; rise

[spencer.martell]

Answer to Question 1

The nominal interest rate is the opportunity cost of holding money because the nominal interest is the income forgone by holding money. For instance, an individual with 1,000 can hold the funds either as money or as a financial asset with an interest rate of, say, 7 percent. If the funds are held as money, the interest paid is 0; if they are held as a financial asset, the interest paid is 70. Choosing to hold the funds as money therefore has an opportunity cost of the interest income forgone, which is 70 or 7 percent per dollar. So, the opportunity cost of each dollar held as money is 7 percent.

Answer to Question 2

C