The Yield on a 1-Year Bill in the U

question 36

Multiple Choice

The yield on a 1-year bill in the U.K.is 8%, and the present exchange rate is 1 pound = U.S.$1.60.If you expect the exchange rate to be 1 pound = U.S.$1.50 a year from now, the return a U.S.investor can expect to earn by investing in U.K.bills is

• A)-6.7%.
• B)0%.
• C)8%.
• D)1.25%.
• E)None of the options

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Definitions:

Production Possibilities Frontier

A curve depicting all maximum output possibilities for two goods, given a set of inputs, representing the trade-off between different choices in the allocation of resources.

Opportunity Cost

Giving up possible gains from several options by choosing a particular one.

Bowed Outward

A description of the shape of a curve on a graph, such as the production possibilities frontier, indicating increasing opportunity costs.

Opportunity Cost

The penalty of dismissing the closest superior alternative when engaging in the process of decision-making.