Suppose the average interest rate on euro bonds is 4%, and the average interest rate on U.S. dollar bonds is 6%. Which should the investor choose?
A) neither-bonds have high default rates
B) both-an investor will choose some euro bonds and some U.S. bonds to diversify
C) the euro bond because their economies are usually more stable
D) It is not possible to answer without information on exchange rates.

Question

Quizplus · Accepted Answer

The choice between euro bonds and U.S. dollar bonds depends on the exchange rate risk, as fluctuations in exchange rates can affect the returns on foreign investments. Without information on exchange rates, it's not possible to determine which investment is more favorable.

Suppose the Average Interest Rate on Euro Bonds Is 4