When Arbitrage Occurs Across Countries with Flexible Exchange Rates and When

question 76

Multiple Choice

When arbitrage occurs across countries with flexible exchange rates and when the bonds in each country are identical and there are no barriers to capital flows:

• A) the interest rates on the bonds will be identical.
• B) the prices of the bonds will be identical.
• C) the inflation rates in each country will be identical.
• D) none of the answers provided is correct.

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Definitions:

Buyer's Market

A market condition characterized by an abundance of goods available for sale, giving buyers an advantage over sellers in terms of price negotiations.

Seller's Market

A market condition characterized by a shortage of goods available, leading to sellers having an advantage over buyers in price negotiations.

Independent Demand

Refers to the need for goods or services that is determined by external market forces, not linked to the production schedules of related items.

Derived Demand

A demand for a product or service that arises from the demand for another product or service. For example, demand for steel is derived from the demand for automobiles.