Suppose the average interest rate on euro bonds is 4% and the average interest rate on U.S. dollar bonds is 6%. Which should the investor choose? The euro bond, because European economies are usually more stable Neither, because bonds have high default rates in both countries. Both, because an investor will choose some euro bonds and some U.S. bonds to diversify O It is not possible to answer without information on exchange rates.

Suppose the average interest rate on euro bonds is 4% and the average interest rate on U.S. dollar bonds is 6%. Which should the investor choose? The euro bond, because European economies are usually more stable Neither, because bonds have high default rates in both countries. Both, because an investor will choose some euro bonds and some U.S. bonds to diversify O It is not possible to answer without information on exchange rates.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Imagine you are a German investor trying to decide whether to buy American or European bonds. A ten-year bond issued by America’s Treasury today offers about 3%; German bonds return only 1.2%. But buying American means taking a gamble on the euro-dollar exchange rate. You are interested in the return in euros. The bond issued in the US will be attractive only if the extra yield exceeds any expected loss due to swings in currency markets. This thinking explains why the dollar has recently soared against the euro. In July 2022 the dollar reached a one-for-one exchange rate with the euro for the first time since 2002. Is it always true that a currency appreciates in value when the interest rate it offers increases relative to foreign interest rates? Explain.
A box of chocolate candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP) holds, what is the current exchange rate? Ⓒa 1 U.S. dollar equals 1.44 Swiss francs Ob. 1 U.S. dollar equals 1.21 Swiss francs Oc1 US dollar equals 1.29 Swiss francs d. 1 U.S. dollar equals 0.69 Swiss francs e. 1 U.S. dollar equals 0.85 Swiss francs
Assume that you buy a 1-year, 168,000-peso Philippine bond that pays 9 percent when the exchange rate is 1 Canadian dollar for 42 pesos. If, after one year, the peso falls to 1 Canadian dollar equals 45 pesos, how much have you gained or lost in Canadian dollars? Round your answer to the nearest dollar amount. loss * $ 4353
1. If Thalland wants to maintain a fixed exchange rate of 1 baht per euro, it should ___________ euros in the foreign exchange market. To be successful, this policy would have to ___________ euros by______ billion euros at any given exchange rate. 2. If investors believe the baht is going to be _________ as a result of the change in demand, a speculative attack may occur. 3. True or False: in the event of a successful speculative attack. Thai businesses tend to suffer because their foreign debt will now cost more to repay. True False
Which of the following will most likely cause a nation's currency to appreciate on the foreign exchange market? a. A decrease in domestic interest rates O b. An increase in foreign interest rates c. Stable domestic prices while the nation's trading partners are experiencing 10 percent inflation O d. Domestic inflation of 10 percent while the nation's trading partners are experiencing stable prices
Suppose you observe the following exchange rates and interest rates for the USD and JPY: Bid Ask USD/JPY 105.20 105.95 USD,JPY F,360 104.25 105.10 Trader lends at Trader borrows at I USD ? ? I JPY 1.40% 1.50% Which answer is closest to the maximum US lending rate that prevents covered interest rate arbitrage? 3.21% 3.16% 3.05% 2.32% 2.42%
Consider avocado trading between you and nber. Your tree grows 100 this year and 10 next year.Nber's tree grows 20 this year and 50 next year.Let the equilibrium exchange rate be v. Consider a different scanerio: Your tree grows 100 this year and 10 next year.Nber's tree grows 20 this year and 60 next year.Let the equilibrium exchange rate be v'. Then v>v'. Hint: you can use your intuition to figure this out without any calculation. A. TrueB. False
Help.... Urgent...
Price per euro P₂ P₁ Po Qo Q₁ Q₂ Q3 1) the excess demand of euro equal to Q3 - Q1. In the above figure, suppose the value of the European euro is P₁ and U.S. demand for French wine declines. The effect on the franc can be shown by S 3) the decrease in the value of the euro to Po. Quantity of euros 2) a shift in the demand for euros from D₁ to Do, but no change in the value of the euro. 4) an increase in the value of the euro to P2.
Let's suppose the current exchange for Forint (Hungary currency) vs. Kuna (Croatia currency) is: 55.75 Forint/Kuna. Suppose the interest rate on Hungary's government securities with one-year maturity is 3%, and that of Croatia is 2%. According to the International Fisher Effect model, Forint will _____ against the other currency.
If the European euro were to depreciate relative to the U.S. dollar in the foreign exchange market, would it be easier or harder for the French to sell their wine in the United States? Suppose you were planning a trip to Paris. How would depreciation of the euro change the dollar cost of your trip?
Suppose that the annual rate of returns on dollar deposits equals 2% and the rate of returnon euro deposits is 1%. Furthermore, assume that expected exchange rate in a year is$1.1=1 euro and the current exchange rate is $1.08=1 euro. Should you invest in dollardeposits or euro deposits?