The yield curve is the relationship between the:
a. Domestic yield and foreign yield.
b. Real yield (i.e., interest rate) and actual inflation.
c. Nominal yield and time to maturity of a security.
d. Nominal yield on corporate securities and the yield of government securities.
e. Nominal yield and real yield of a security.
Question 2
Assume that foreign capital flows from a nation increase due to political uncertainly and increased risk. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and current international transactions balance in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises and current international transactions balance becomes more positive (or less negative).
b. The real risk-free interest rate rises and current international transactions balance becomes more negative (or less positive).
c. The real risk-free interest rate and current international transactions balance remain the same.
d. The real risk-free interest rate rises and current international transactions balance remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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