choose option from the highted below : 1a.An investor considering investing in b
ID: 1200494 • Letter: C
Question
choose option from the highted below:
1a.An investor considering investing in bonds in a foreign country, optimally should
look for the country that had the most rapidly depreciating currency and invest there.
look for the country offering the highest interest rate and invest there.
be concerned with only changes in that country's currency value in the future.
look for the country that had the most rapidly appreciating currency and invest there.
be concerned with interest rates and with changes in that country's currency value in the future.
1b
Given the textbook’s definitions of variables reflecting components of the national income accounts private saving equals
Y - CA
Y - T - C + CA
Y - T - G
T - G
Y + CA
Explanation / Answer
(1a) Last option is correct.
Returns from a foreign investment depends on two equally important factors: One, the interest rate (the higher the interest rate, the higher the return, ceteris paribus), and the exchange rate of the target country's currency.
(1b)
Y = C + I + G + CA [Where CA: Current account balance = Export - Import]
Private saving, S = Y - C = I + G + CA
None of given options is correct. Please write in the Comment section: What do C and CA represent? I take C as total consumption and CA as Current account balance as above.
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