Question

1) In what sense can FDI be considered as debt? In which recipient country must pay back eventually ?

2) Is this following statements correct?

The yield curve cannot be observed , it is only a theoritical concept ?

The policy interest rate determines the slope

of the yield curve ?

what is the relationship between government interest rate and yield curve?

Answer 1

1. FDI is done with earning something in my mind. When an entity does FDI to another country, it is expecting to have good return on the intvestment (consider that interest on debt) and there will be a time when this entity will sell the particular investment (a plant, a lab, a project) to someone local eventually. Consider that pay back of the principal. So in this regard, we can see that FDI is like a debt.

2. False. Yield curve can be, and does get, observed.

3. True. Yield curve is composted of policy interest rates of different time spans.

4. As explained in part C, yield curve is composed of interest rates of differing time periods. For example, one point on yield curve would be the current interest rate being offered on 5 year bonds. Another would be interest rate being offered on 2 year bonds and so on. Connecting all these points gives us yield curve.