F
Frances
Member
Hi,
There is a 3 mark question on why the bond yields on the government bonds may vary. In the solutions, it notes that there may be different risk free yields in the two economies, and that there may be lower risk-free rates in the domestic economy. Is this a typo - I had it the other way round i.e. in the major overseas economy.
Also, please could someone explain the point around how a devaluation of the domestic currency can lead to higher yields? And also why a devaluation would happen due to high levels of inflation.
Thanks,
Fran
There is a 3 mark question on why the bond yields on the government bonds may vary. In the solutions, it notes that there may be different risk free yields in the two economies, and that there may be lower risk-free rates in the domestic economy. Is this a typo - I had it the other way round i.e. in the major overseas economy.
Also, please could someone explain the point around how a devaluation of the domestic currency can lead to higher yields? And also why a devaluation would happen due to high levels of inflation.
Thanks,
Fran