Question 14Multiple possible answersThe current account deficit of a country increases if, other things being equalO The cost of capital decreasesThe national income increasesThe inflation decreasesThe inflation increasesThe cost of capital increasesThe national income decreases

An account that shows the record of economic transaction transfer of payments, goods, and services…

Answered: Multiple possible answers The current…

Fundamentals of Financial Management (MindTap Course List)

15th Edition

ISBN:9781337395250

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter6: Interest Rates

Section: Chapter Questions

Problem 20SP: INTEREST RATE DETERMINATION AND YIELD CURVES a. What effect would each of the following events...

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QUESTION 1Everything else equal, the Phillips-curve in a country will shift upwards when the unemployment rate fallsthe central bank cuts interest ratesoil prices risethe government reduces tax rates on labour QUESTION 2Consider a country with a flexible exchange rate. If the central bank of this country raises its interest rate by 0.5%-points, whereas observers had anticipated an increase of only 0.25%-points, one can expect that: Bond prices and stock prices rise, the country’s currency depreciatesBond prices rise, stock prices fall, the country’s currency appreciatesBond prices fall, stock prices rise, the country’s currency depreciatesBond prices and stock prices fall, the country’s currency appreciates QUESTION 3We asked five students to give us three possible sources of an increase of the monetary base in the economy. Only one of the students came up with a completely correct list. This list included: an increase in central bank lending to banks, a purchase of…
A country running a large current account deficit tends to have Question 18 options: a booming export oriented economy an excessively strong currency a large surplus in its financial account a large budget surplus
A4) Finance Under the gold standard, when annual goods production outstrips the annual production of gold the following will occur: An expansion of the global money supply A contraction of the global money supply No change in the global money supply None of the above
International Finance (chapter 21) Question Explain how each of the following will affect the relative values of the dollar and the French franc: Income growth higher in the United States than in France. Inflation higher in France than in the United States. A real interest rate higher in the United States than in France. please solve 3
INTEREST RATE DETERMINATION AND YIELD CURVES a. What effect would each of the following events likely have on the level of nominal interest rates? 1. Households dramatically increase their savings rate. 2. Corporations increase their demand for funds following an increase in investment opportunities. 3. The government runs a larger-than-expected budget deficit. 4. There is an increase in expected inflation. b. Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 4%; and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0 02(t 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the companys bond rating, from the table below. Remember to subtract the bonds LP from the corporate spread given in the table to arrive at the bonds DRP. What yield would you predict for each of these two investments? Rate Corporate Bond Yield Spread = DRP + LP U.S. Treasury 0.83% ---- AAA corporate 0.93 0.10% AA corporate 1.29 0.46 A corporate 1.67 0.84 c. Given the following Treasury bond yield information, construct a graph of the yield curve. Maturity Yield 1 year 5.37% 2 years 5.47 3 years 5.65 4 years 5.71 5 years 5.64 10 years 5.75 20 years 6.33 30 years 5.94 d. Based on the information about the corporate bond provided in part b, calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds. e. Which part of the yield curve (the left side or right side) is likely to be most volatile over time? f. Using the Treasury yield information in part c, calculate the following rates using geometric averages: 1. The 1-year rate 1 year from now 2. The 5-year rate 5 years from now 3. The 10-year rate 10 years from now 4. The 10-year rate 20 years from now
QUESTION 13All else equal, suppose Country A has a higher level of economic mobility than Country B, which country would be more likely to have higher economic growth?a.Country Ab.Country Bc.There is no relationship between growth and economic mobilityd.It depends on what percentage of mobility is due to intergenerational mobility QUESTION 14The Lorenz curve shows the relationship between which of the following?a.Income inequality and GDP per capitab.Gini coefficients in one country over timec.The percentage of households and the percentage of income earned by those householdsd.Quintiles of income and average income of each quintile QUESTION 15Suppose a country has two sectors, A and B. Sector A uses more physical capital than B and workers are therefore more productive in sector A than in B. Suppose labor is freely mobile between the two sectors. An efficient allocation of labor requires that in equilibrium:a.sector A pays a higher wage than sector Bb.the marginal product in sector A…
QUESTION 15 When considering long-term foreign exchange fluctuations which of the following cause- effect relationships is true? options A. As inflation decreases, the real interest rate decreases and the currency weakens. B. When unemployment decreases, the local economy is stronger and the currency strengthens. C.Greater liquidity and smaller spreads lead to stronger local currency. D.Interest rate increases indicate weaker monetary policies which make a country less attractive to foreign investors and result in weaker local currencies. QUESTION 15(B) The inside market at a pure order driven exchange is 40 bid, 40.5 asked for ABC. Brokers then submit a limit buy order at 40.125, and a limit sell order at 40.425. If you then submit a small buy market order, at what price will your order be filled? options A.40 B. 40.625 C. 40.5 D.40.425 E. 40.125

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Multiple possible answers The current account deficit of a country increases if, other things being equal