Suppose Two Countries Make a Credible Commitment to Fix Their

question 1

Multiple Choice

Suppose two countries make a credible commitment to fix their bilateral exchange rate. In such a situation, we know that:

• A) the interest rate in the two countries must be equal.
• B) the uncovered interest parity condition no longer holds.
• C) the real exchange rate must be constant as well.
• D) neither country will run a trade deficit.
• E) each country can freely allow its interest rate to diverge from that of the other country.

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Marketable Securities

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Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows.

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Banking services that speed up the collection of payments from customers by using a special post office box accessible by the bank.