Suppose that the current rate is 4% and markets expect the Fed to increase the rate to 4.5% at the next meeting. Then some economic news is released, leading markets to expect that at its next meeting, the Fed will set its rate at 4% with probability 50% and at 4.5% with probability 50%. Then the Fed ends up not changing its rate relative to the last meeting. What happens to the price of Treasury bonds? options: Prices go down then up. Prices go down then down. Prices don't change. Prices go up then up. Prices go up then down.

Suppose that the current rate is 4% and markets expect the Fed to increase the rate to 4.5% at the next meeting. Then some economic news is released, leading markets to expect that at its next meeting, the Fed will set its rate at 4% with probability 50% and at 4.5% with probability 50%. Then the Fed ends up not changing its rate relative to the last meeting. What happens to the price of Treasury bonds? options: Prices go down then up. Prices go down then down. Prices don't change. Prices go up then up. Prices go up then down.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter9: Forecasting Exchange Rates

Section: Chapter Questions

Problem 5BIC

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