An Increase in the Interest Rate Causes Investment to

question 50

Multiple Choice

An increase in the interest rate causes investment to

• A)rise and the exchange rate to appreciate.
• B)fall and the exchange rate to depreciate.
• C)rise and the exchange rate to depreciate.
• D)fall and the exchange rate to appreciate.

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Definitions:

Basis Point

A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument, equal to 1/100th of 1%.

Bond Prices

The cost or value of a bond, which can fluctuate based on interest rates, credit quality of the issuer, and other factors.

Yields

Yields refer to the earnings generated and realized on an investment over a particular period, expressed as a percentage based on the investment’s cost, its current market value, or its face value.

Debentures

A type of debt instrument not secured by physical assets or collateral but based on the creditworthiness and reputation of the issuer.