Countries a and B Trade Freely with Each Other

question 231

Multiple Choice

Countries A and B trade freely with each other.Suppose that interest rates in the loanable funds market in country A are lower than in country B.This means:

• A) funds will flow from country A to country B.
• B) this interest rate differential will persist as long as citizens view domestic assets as substitutes for foreign assets.
• C) funds will flow from country B to country A.
• D) interest rate differentials cannot be changed.

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Definitions:

Lockup Transaction

Agreements restricting company insiders from selling their shares for a set period after an initial public offering to prevent a sudden oversupply of stock.

Synergies

Synergies are the additional value created by the combination of two companies, expected to result in cost savings or increased revenues beyond what the individual entities could achieve alone.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Investment Opportunities

Options available for entities or individuals to invest capital with the expectation of a positive return.