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2. 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, because 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. 3. If the U.S. interest rate is 4% per year and the U.K. interest rate is 9% per year, which of the following statements is TRUE? (a) The dollar will depreciate 13% in one year. (b) The pound will depreciate 13% in one year. (c) The pound will appreciate 5% in one year. (d) The dollar will appreciate 5% in one year.

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Answer: 2) d) It is not possible to answer without information on exchange rates

3) c) The pound will appreciate 5% in one year.

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