If the Dollar Interest Rate Is 10 Percent and the Euro

question 36

Multiple Choice

If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then

• A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent.
• B) an investor should invest only in euros if the expected dollar depreciation against the euro is 8 percent.
• C) an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 8 percent.
• D) an investor should invest only in dollars.
• E) an investor should invest only in euros.

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Definitions:

Yerkes-Dodson Law

A psychological principle stating that performance increases with arousal up to an optimal point, after which it decreases as arousal levels become too high.

Arousal Theory

A theory in psychology that suggests motivation is driven by levels of arousal, where individuals are motivated to maintain an optimal level of arousal.

Yerkes-Dodson Law

A psychological principle stating that performance increases with arousal only up to a point, after which performance decreases.

Arousal

A physiological and psychological state of being awake, alert, and engaged, often as a response to stimuli.