A Small Country Is a Net Foreign Borrower and Its

question 224

Multiple Choice

A small country is a net foreign borrower and its demand for loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country _ and the country's foreign borrowing .

• A) increases; does not change
• B) does not change; increases
• C) does not change; does not change
• D) increases; increases

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Definitions:

Coupon Rate

The interest payment made annually on a bond, shown in percentage terms of its face value.

Time To Maturity

The duration remaining until the final payment date of a loan, bond, or other financial instrument, at which point the principal (and usually the final interest payment) is due to be paid.

Interest Rate Risk

The risk that the value of an investment will decrease due to a change in interest rates.

High Coupon Bond

A bond that offers a relatively high interest rate (or coupon rate) compared to the current prevailing rates of other similar bonds.