Which answers from the higlighted below is correct? Consider the risk premium, ,
ID: 1207266 • Letter: W
Question
Which answers from the higlighted below is correct?
Consider the risk premium, , as defined in lecture and in the textbook. If the home country's government sells more government bonds, then all else equal
that risk premium will not change and the price of foreign currency, E, will not change.
that risk premium will not change, but the price of foreign currency, E, will fall.
that risk premium will rise.
that risk premium will fall.
that risk premium will not change, but the price of foreign currency, E, will rise.
1b
In a sterilized foreign exchange intervention, the central bank for a country
can cause its currency rate to depreciate by decreasing the money supply.
can cause its currency to depreciate by inducing commercial banks to increase the amount that they loan out.
can cause its currency rate to depreciate by activity which includes increasing its holdings of international reserves.
can cause its currency to depreciate by increasing the money supply.
can cause its currency to depreciate by activity which includes increasing its holdings of domestic assets.
1c
If a country has a positive balance of payments, there is no sterilization, and domestic monetary base remains constant, then
the foreign monetary base is unaffected, but the domestic country's official settlements balance (OSB) should be positive.
the foreign monetary base is unaffected, but the domestic country's net-debit financial account (FA) should be positive.
the foreign monetary base should increase.
the foreign monetary base is unaffected, but the domestic country's current account (CA) should be positive.
the foreign monetary base should decrease
Explanation / Answer
that risk premium will not change, but the price of foreign currency, E, will rise.
can cause its currency to depreciate by increasing the money supply.
the foreign monetary base should increase.
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