When Arbitrage Occurs Across Countries with a Flexible Exchange Rate

question 72

Multiple Choice

When arbitrage occurs across countries with a flexible exchange rate and when the bonds in each country are identical and there are no barriers to capital flows then the:

• A)Interest rates on the bonds will be identical
• B)Expected return on the bonds will be identical
• C)Inflation rates in each country will be identical
• D)Prices of the bonds will be identical

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