For This Question,assume the Interest Parity Conditions Holds

question 4

Multiple Choice

For this question,assume the interest parity conditions holds.Also assume that the domestic interest rate is 10% and that the foreign interest rate is 7%.Given this information,we would expect that

• A)individuals will only hold foreign bonds.
• B)individuals will only hold domestic bonds.
• C)the domestic currency is expected to appreciate by 3%.
• D)the domestic currency is expected to depreciate by 3%.

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Definitions:

Average Total Cost

The sum of all production costs divided by the quantity of output produced, synonymous with the cost per unit including all variable and fixed costs.

Long-run Equilibrium

A state in which all factors of production and costs are variable, and firms in the industry make just enough profit to stay in business.

Short-run Profits

Short-run profits occur when a company's revenue exceeds its operating costs within a particular, relatively brief period.

Long Run

A period in economics where all inputs, including capital and labor, can be adjusted.