If investors can cover themselves in the forward market, they will take advantage of interest rate differentials by:
a. buying assets (lending) denominated in the high-interest rate currency, and selling assets (borrowing) in the low-interest rate currency.
b. removing funds from both investments.
c. turning over their investment portfolio to an expert in one of the two nations.
d. selling assets denominated in high-interest rate currency and buying assets in the low-interest rate currency.
Ans: a. buying assets (lending) denominated in the high-interest rate currency, and selling assets (borrowing) in the low-interest rate currency.
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If there is no Ricardo-Barro effect, when the government runs a budget surplus, it
A) contributes to financing investment. B) competes with businesses for private saving. C) shifts the demand for loanable funds curve rightward. D) shifts the supply of loanable funds curve leftward. E) shifts the demand for loanable funds curve leftward.
How does the substitution effect work when the price of item increases?
A. The item becomes less and less popular as price drops B. Consumers buy the cheaper item B as a substitute for item A C. Consumers buy item A even if they do not particularly want it D. The substitutes for item A also increase in price