The effective return from a foreign investment is
A) the domestic interest rate plus the forward premium (discount).
B) the foreign interest rate plus the forward premium (discount).
C) the nominal interest rate minus inflation.
D) the real interest rate.
B
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When exchange rates are volatile:
A) firms are assured that they will be able to earn profits from currency swings. B) firms engage in more trade. C) trade and cross-border financial and labor flows are reduced as uncertainty and transaction costs take their toll. D) international economic activity is increased.