Use the Following to Answer Questions

question 41

Multiple Choice

Use the following to answer questions:
Figure: International Capital Flows
-(Figure: International Capital Flows) Look at the figure International Capital Flows. Assume that each country's equilibrium interest rate is 4%. To reconcile the apparent disequilibrium in both markets, assuming that assets and liabilities are viewed as homogeneous, capital _____ will _____ interest rates.

• A)outflow from the United States; lower U.S.
• B)outflow from Britain; lower British
• C)outflow from Britain; raise British
• D)inflow to the United States; raise U.S.

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Definitions:

M&M II

Modigliani and Miller Proposition II; a theory on capital structure, which states that the value of a firm is independent of its capital structure, under certain assumptions.

Unlevered Cost

It refers to an investment's cost or return that does not consider the effects of borrowing or leverage.

Targeted Cost

A cost management strategy where a product's planned profit and required cost are computed by considering the competitive market price.

Debt-Equity Ratio

This ratio measures the balance between financing a company's assets with equity compared to debt.