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The nominal exchange rate (E) as defined in the text represents the price of domestic currency in terms of foreign currency.For this question, suppose the domestic interest rate is 4% and that the foreign interest rate is 7%. And finally, assume thaAnother name for current account transactions is investment income. transactions above the line. capital account trans

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Answer #1

1. Both A and C, both effectively means the same. That is, the price of one currency in terms of other.

2. Individuals will hold foreign bonds, net return is 7% (interest) + 3%(domestic currency depreciates) = 11%

Which is greater than domestic bond returns.

3. Investment income

It is other than capital account transactions. Includes

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