Consider the Following: an Investor in the U $\le$ ) That Pays an Interest Rate of If

question 51

Multiple Choice

Consider the following: an investor in the U.S.is pondering a one-year investment.She can purchase a domestic bond for $1,000 that has an interest rate of i or she can purchase a bond in England for 1,500 British pounds ( $\le$ ) that pays an interest rate of if.The current exchange rate is $1.50/ $\le$ .She considers the bonds to be of equal risk.If i = if, the expected returns are not equal.What do you know?

• A)The exchange rate is fixed between the U.S.and Britain
• B)The bonds initially sold for different prices
• C)Arbitrage doesn't work
• D)The exchange rate must be flexible

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Definitions:

Leg Buds

Early embryonic structures that eventually develop into the legs in various animals, including humans.

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A principle of physical growth that describes how growth starts at the head and upper body parts and then proceeds to the rest of the body.

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The process of change and growth in physical, cognitive, and social aspects over the lifespan.