Econ 110B Ch18 Questions

Econ 110B Ch18 Questions - foreign interest rate What does...

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Economics 110B Practice Questions for Chapter 18 Questions 1) Explain the three distinct notions of openness. 2) First, write out the expression/equation for the real exchange rate. Second, explain all factors that determine the real exchange rate. 3) What are the differences between the real exchange rate and nominal exchange rate? Explain. 4) Discuss what factors could cause a real depreciation. 5) Explain the difference between gross domestic product and gross national product. 6) Suppose you are considering the purchase of a bond issued in another country. What calculations must you do to calculate the expected return on a foreign bond? Explain. 7) Explain what factors determine the expected return on a foreign bond. 8) Suppose the interest parity condition holds and that the domestic interest rate is greater than the
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Unformatted text preview: foreign interest rate. What does this imply about the current versus future expected exchange rate? Explain. 9) Suppose the interest parity condition holds. Also assume that the one-year interest rate in the United States is 6% and that the one-year interest rate in Canada is 6%. What does this imply about the current versus future expected exchange rate (for the U.S. and Canadian dollars)? Explain. 10) Assuming that the interest parity condition holds, what type of information is contained in interest rate differentials between domestic and foreign bonds? Explain. 11) Explain why a comparison between the interest rates on domestic and foreign bonds might provide misleading information about which bonds yield the highest expected returns. 1...
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This note was uploaded on 05/01/2011 for the course ECON 110B taught by Professor Peters during the Spring '07 term at UCSD.

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