The exchange rate affects international bond markets in two ways because: The ex

Question

The exchange rate affects international bond markets in two ways because:

The exchange rate determines how much domestic residents need to pay for foreign bonds and also how much foreign residents need to pay for domestic bonds.

The level of the exchange rate affects relative yields of domestic and foreign bonds, while the expected change in the exchange rate affects the relative value of domestic and foreign bondholdings.

The expected change in the exchange rate affects relative yields of domestic and foreign bonds, while the level of the exchange rate affects the relative value of domestic and foreign bondholdings.

It influences both the domestic bond market and the foreign bond market.

None of the above.

The exchange rate determines how much domestic residents need to pay for foreign bonds and also how much foreign residents need to pay for domestic bonds.

The level of the exchange rate affects relative yields of domestic and foreign bonds, while the expected change in the exchange rate affects the relative value of domestic and foreign bondholdings.

The expected change in the exchange rate affects relative yields of domestic and foreign bonds, while the level of the exchange rate affects the relative value of domestic and foreign bondholdings.

It influences both the domestic bond market and the foreign bond market.

None of the above.

Explanation / Answer

The correct answer is C. The change in the exchange rate effects the relative yields and the level of the exchange rate the relative values. The correct answer is C.

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