The Credibility Theory of the EMS Implies in Effect That

question 24

Multiple Choice

The credibility theory of the EMS implies in effect that the political costs of violating international exchange rate agreements

• A) cannot restrain governments from depreciating their currency.
• B) can restrain governments from depreciating their currency.
• C) cannot restrain governments from depreciating their currency in the short run.
• D) cannot restrain governments from depreciating their currency in the long run.
• E) can control the political policies of member nations.

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Definitions:

Long-term Corporate Bonds

Debt securities issued by corporations with maturities longer than ten years, offering periodic interest payments and the return of principal at maturity.

Risk Level

The degree of uncertainty and potential financial loss involved in an investment decision.

Real Rate of Return

The annual percentage return realized on an investment, adjusted for changes in the price level due to inflation or other external effects.

Nominal Rate

The stated interest rate of a financial instrument, not adjusted for inflation or other factors that affect its true cost or yield.