Suppose That a U

question 119

Multiple Choice

Suppose that a U.S. dollar can earn interest of 5 percent a year in Chicago and a Canadian dollar can earn interest of 7 percent a year in Winnipeg. Will money flow from Chicago to Winnipeg?

• A)Yes, because the returns on money are higher in Winnipeg.
• B)No, because the outflow of U.S. funds would create a decrease in the U.S. dollar value, penalizing investors when they attempted to recover their funds.
• C)No, if investors expect that the Canadian dollar will appreciate by at least 2 percent per year.
• D)No, if investors expect the U.S. dollar to appreciate by at least 2 percent per year.
• E)No, as long as the U.S. dollar maintains higher purchasing power than the Canadian dollar.

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Definitions:

AC Circuit

A circuit in which the current changes direction periodically, powered by an alternating voltage source.

Inductive Reactance

A measure of the opposition by an inductor to changes in current, dependent on frequency.

Inductance

A property of an electrical conductor by which a change in current in the conductor induces an electromotive force in both the conductor itself and in any nearby conductors by mutual inductance.

Voltage Drop

Voltage drop is the reduction in electrical potential across a component or conductor in an electrical circuit as current flows through it.