Suppose That You Are an Israeli Citizen and Had Invested

question 126

Essay

Suppose that you are an Israeli citizen and had invested in a one-year U.S. bond that yielded 5 percent. The bond cost $5,000 and paid $5,250 at the end of the year. At the time you bought the bond, the exchange rate was 3.8 shekels/dollar. How many shekels did the bond cost? If the exchange rate fell to 3.5 shekels/dollar over this time period, what would the return on your investment be?

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Definitions:

Implicit Cost

The opportunity costs that are not directly paid or incurred but represent the loss of alternative benefits when resources are used in a particular way.

Capital

A resource, such as equipment or buildings, used to produce goods and services.

Implicit Costs

The opportunity costs that are not directly paid for or visibly incurred in financial transactions but represent real costs to economic actors.

Economic Costs

Economic costs include both the explicit costs of production, such as raw materials and wages, and implicit costs, such as opportunity costs.