Suppose the U

question 17

Multiple Choice

Suppose the U.S.one-year interest rate is 3% per year,while a foreign country has a one-year interest rate of 5% per year.Ignoring risk and transaction costs,a U.S.investor should invest in foreign bonds as long as the expected yearly rate of depreciation of the foreign currency is

• A)less than 5%.
• B)greater than 5%.
• C)greater than 2%.
• D)less than 2%.
• E) less than 1%.

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Definitions:

Marginal Cost

The financial impact of producing an extra unit of a product or service.

Perfectly Competitive Firms

Firms that operate in a market where no single buyer or seller has the power to influence the price of the product, and where the product offered is homogeneous, with many sellers and buyers.

AVC

Average Variable Cost; the total variable costs (costs that change with the level of output) divided by the quantity of output produced.

Minimize Losses

A strategy or approach aimed at reducing the amount of money or resources that are being lost or wasted.