In the Interest Rate Parity Condition with Imperfect Substitutes and a Risk

question 42

Multiple Choice

In the interest rate parity condition with imperfect substitutes and a risk premium of ρ

• A) an increased stock of domestic government debt will raise the difference between the expected returns on domestic and foreign currency bonds.
• B) a decreased stock of domestic government debt will raise the difference between the expected returns on domestic and foreign currency bonds.
• C) an increased stock of domestic government debt will reduce the difference between the expected returns on domestic and foreign currency bonds.
• D) an increased stock of domestic government debt will have no effect on the difference between the expected returns on domestic and foreign currency bonds.
• E) a decreased stock of domestic government debt will have no effect on the difference between the expected returns on domestic and foreign currency bonds.

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Definitions:

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Economic development that aims to reconcile global economic growth with environmental protection.

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An increase in the production of goods and services in an economy over a period of time, typically measured by GDP.

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