Consider the following: an investor in the U.S.is pondering a one-year investment.She can purchase a domestic bond for $1,000 that has an interest rate of i or she can purchase a bond in England for 1,500 British pounds ($\le$) that pays an interest rate of if.The current exchange rate is $1.50/$\le$.She considers the bonds to be of equal risk.If i = if, the expected returns are not equal.What do you know?

Question

Quizplus · Accepted Answer

The expected returns are not equal if the exchange rate is flexible, as changes in the exchange rate can affect the return on the foreign bond when converted back to U.S. dollars.

Consider the Following: an Investor in the U ≤\le≤ ) That Pays an Interest Rate of If

Consider the Following: an Investor in the U $\le$ ) That Pays an Interest Rate of If