If investors are to hold both Canadian and foreign bonds,the interest rate on Canadian bonds
A)must equal that of foreign bonds.
B)must always exceed that on foreign bonds.
C)must equal that on foreign bonds plus the expected rate of depreciation.
D)must equal that on foreign bonds,on average.

Question

Quizplus · Accepted Answer

The interest rate on Canadian bonds must equal that on foreign bonds plus the expected rate of depreciation of the Canadian dollar to maintain equilibrium in the bond market, considering exchange rate risk.

If Investors Are to Hold Both Canadian and Foreign Bonds,the