Final answer:
A tight money policy that raises interest rates in Britain relative to Switzerland will lead to the appreciation of the British Pound and depreciation of the Swiss Franc. Investors will require higher yields on Swiss government bonds to compensate for the expected depreciation of the Swiss Franc.
Step-by-step explanation:
When a tight money policy raises interest rates in Britain compared to Switzerland, investors are attracted to the higher returns on investment offered by British assets. This increases demand for the British Pound, causing it to appreciate relative to other currencies. Conversely, as investors sell the Swiss Franc to purchase British Pounds, it leads to an increase in the supply of the Franc on foreign exchange markets, resulting in depreciation of the Swiss Franc relative to the Pound.
If a country's currency, such as the Swiss Franc in this scenario, is expected to depreciate due to these comparative changes in monetary policy and interest rates, there would likely be a decrease in the demand for that currency. Consequently, the yields on government bonds in the country facing currency depreciation (Switzerland, in this case) may rise as investors require higher returns to compensate for the expected loss due to currency depreciation.