The Country of Nowhere Is Politically Very Stable and Has

question 111

Multiple Choice

The country of Nowhere is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, which statement would happen?

• A) Nowhere's real interest rate would rise.
• B) Nowhere's real exchange rate would fall.
• C) Nowhere's net exports would fall.
• D) Nowhere's net exports would not change.

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Definitions:

Interest Tax Benefit

The financial advantage gained through deducting interest payments on debt from taxable income.

MM Model

Modigliani-Miller Model; a theory on capital structure that suggests the market value of a firm is determined by its earning power and the risk of its underlying assets.

Tax-Deductibility

Pertains to expenses that can be subtracted from gross income to reduce the total taxable income, thereby lowering the amount of tax owed.

Financial Leverage

Engaging borrowed assets to increase the anticipated yield from an investment.