If the interest rates in a country are higher relative to interest rates in other countries,the short-term and long-term effects on the value of the currency of that country are:
A) the same,since interest rates do not affect currency values.
B) the same,since the central bank of the country will lower interest rates so that interest rates will not affect currency value.
C) the value of the currency will increase as capital flows into the country to take advantage of the higher interest rates,but the value of the currency will decline when investors withdraw their funds from that country.
D) the value of the currency will decrease as confidence in the country's currency suffers,but the value of the currency will eventually rise as confidence is restored.
Correct Answer:
Verified
Q2: Borrowing in one currency at a low
Q3: _ is based on the concept that
Q4: Purchasing Power Parity is most useful in
Q5: When a foreign interest rate is higher
Q6: Currencies trade in pairs which means that:
A)an
Q7: For MNCs,the discrepancies in the price of
Q8: In the context of covered interest arbitrage,the
Q9: _ say(s)that exchange rates should equalize prices
Q10: The majority of cover interest arbitrage transactions
Q11: Currency-related parity conditions arise from:
A)international currency markets.
B)cross-border
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