Let i_f be the interest rate being paid on a foreign bond, and let i be the interest rate being paid for a domestic bond; let P be the price of the domestic bond and let P_f be the price of the foreign bond.If exchanges rates are fixed and the bonds are equal in terms of risk:

Question

Quizplus · Accepted Answer

All of the given answers are correct. In case of equal risk, the interest rate being paid on a foreign bond is equivalent to the interest rate of a domestic bond. The price of the domestic bond is directly proportional to the price of the foreign bond with respect to the exchange rate. Finally, if the risk associated with the foreign and domestic bonds is the same, then the expected return from both bonds should be equal.

Let If Be the Interest Rate Being Paid on a Foreign

Let I_f Be the Interest Rate Being Paid on a Foreign