If a Country Has a Credible Peg with No Risk

question 10

Multiple Choice

If a country has a credible peg with no risk of a depreciation or of other risks (e.g., default risk) , then UIP implies that:

• A) its interest rate should equal foreign interest rates.
• B) its interest rate should be greater than foreign interest rates.
• C) its interest rate should be less than foreign interest rates.
• D) there should be no relationship between its interest rate and foreign interest rates.

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Definitions:

Placenta

The partly fetal and partly maternal organ whereby materials are exchanged between fetus and mother in the uterus of placental mammals.

Embryo/Fetus

The stage of development in vertebrates from fertilization until birth, beginning as an embryo and later developing into a fetus.

Hominoids

A group of primates that includes great apes and humans, characterized by their larger brain sizes, lack of tail, and more complex behaviors compared to other primates.

Opposable Thumbs

A thumb that can be moved freely and oppositely to the other fingers, allowing grasping objects.