Suppose two corporate bonds with similar risk pay different rates of return. The process of arbitrage should:
A. not affect their rates of return.
B. increase the return on the asset with the higher rate of return as the demand for it
increases.
C. increase the gap between the two rates of return.
D. eventually equalize their rates of return.
D. eventually equalize their rates of return.
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The real exchange rate, q, is defined as
A) the price of the foreign basket in terms of the domestic one. B) the price of the domestic basket in terms of the foreign one. C) the price of the foreign basket. D) the price of the domestic basket. E) the nominal exchange rate in terms of the domestic basket.
In the long run, if housing prices are higher in San Diego, California, versus Nashville, Tennessee, then
a. individuals would move to Nashville b. individuals would move San Diego c. there would be no movement across the two cities, since the difference in prices is pure compensation for difference in living conditions d. Both B&C