Assume a System of Floating Exchange Rates

question 42

Multiple Choice

Assume a system of floating exchange rates.In response to relatively high domestic interest rates,suppose that foreign investors place their funds in domestic capital markets.The result would be

• A) a depreciation of the domestic currency and a rise in net exports
• B) a depreciation of the domestic currency and a fall in net exports
• C) an appreciation of the domestic currency and a rise in net exports
• D) an appreciation of the domestic currency and a fall in net exports

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Definitions:

Debt-To-Equity Ratio

A financial ratio indicating the relative proportion of shareholder's equity and debt used to finance a company's assets.

Equity Multiplier

A financial leverage ratio that measures the portion of a company`s assets that are financed by its shareholders' equity.

Price-Earnings Ratio

A valuation ratio comparing a company’s current share price to its per-share earnings, helping investors evaluate if a stock is over or under-valued.

Net Profit Margin

A financial ratio that shows the percentage of net income generated from total revenue.