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1) assume that the following exchange rates exist for the u.s. dollar, japanese yen and the british pound. if you are an arbitrageur that starts with $1,000 in new york, a.you will buy pound in new york, because pound is […]

1) bank claims and liabilities, security purchases, direct investments are examples of items found in the capital account. 2) according to the monetary approach, a balance-of-payments disequilibrium is the result of an imbalance in a countrys money supply and money […]

1) which of the following exchange rate systems is best suited for a country with trade concentrated with one major country? a.fixed peg b.currency standard c.free floating d.managed floating 2) which of the following are reasons for foreign firms to […]

1) eurocurrency deposits are like certificates of deposit because both: a.are guaranteed by deposit insurance b.have fixed terms c.are stated in terms of libor d.are adjusted every three months 2) under the flexible exchange rate regime, which of the following […]

1) suppose that the one-year swiss interest rate is 1% and the one-year u.k. interest rate is 11%. if the current spot rate is 0.75 swiss franc per pound, what must the one-year forward rate (sfr/pound) be according to the […]

1) considering the internal balance in an economy, which of the following could lead to lower interest rate and higher income? a.an increase in government spending b.a depreciation of domestic currency c.an increase in money supply d.a decrease in money […]

1) if the expected inflation in brazil in higher than the expected inflation in the u.s., and the real interest rates are equal across countries, then we would expect the brazilian real (brazils currency) to: a.appreciate b.depreciate c.remain the same […]

1) a foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called a.an unsterilized foreign exchange intervention b.a sterilized foreign exchange intervention c.a balance-of-payment exchange rate rule d.monetary neutrality 2) u.s. banks created […]

1) for a multinational firm using a decentralized management style, the subsidiary would be expected to meet goals for key variables such as sales and labor costs. 2) the expected exchange rate changes will be reflected in the differences between […]

1) the monetary approach states that, under a fixed exchange rate system, an excess demand for money leads to a trade deficit. 2) the law of one price states that identical goods will have the same price in different markets […]

1) a theory based on the relationship of domestic spending for domestic goods relative to domestic output is known as the elasticities approach. 2) if u.s dollar depreciates against foreign currency, the u.s. exports will become relatively more expensive to […]

1) when investors hedge themselves from risk using forward contracts, the international investment is considered: a.flat b.discounted c.a bargain d.covered 2) which of the following features describe the futures market for foreign exchange? i.fixed contracts ii.tailored size contracts iii.fixed maturities […]

1) the j-curve effect could be a result of currency contract period and pass-through price adjustment. 2) assume that the exchange rate is currently at $0.85 per swiss franc and that u.s. importers start to like swiss chocolates more than […]

1) suppose that the one-year u.s. interest rate is 5% and the equivalent one-year swiss interest rate is 4%. according to the covered interest rate parity, there is a forward discount on the swiss franc. 2) the maer emphasizes money […]

1) suppose interest parity holds and there is a sudden change in u.s. policy that leads to expectations of a higher u.s. inflation rate. the increase in expected inflation will cause dollar interest rates to rise. 2) the mabp implies […]

1) suppose the central bank pursues restrictive monetary policy. then: a.the is curve shifts right b.the is curve shifts left c.the lm curve shifts right d.the lm curve shifts left 2) suppose russia’s inflation rate is 200% over one year […]

1) suppose the central bank increases the money supply. then: a.the is curve shifts right b.the is curve shifts left c.the lm curve shifts right d.the lm curve shifts left 2) suppose that the one-year u.s. interest rate is 8% […]

1) assume the following: the current spot rate s/$ = 100.0 and the annual interest rates: ijapan = 2% and ius = 10%. according to covered interest parity, if an intern at citibank sets the one-year forward rate: f360/$ = […]

1) if a country has a trade surplus, the domestic holdings of foreign currency will tend to _______ and the foreign currency will _______. a.decrease; depreciate b.decrease; appreciate c.increase; depreciate d.increase; appreciate 2) in september, 2005, exports of goods from […]

1) the gold standard eliminates the possibility of a balance of payments disequilibrium by: a.changing the peg value of the currency to an ounce of gold b.inflating prices in countries with net inflows of gold and deflating prices in countries […]

1) the london interbank offered rate or libor is used as a benchmark to set loan interest rates. 2) the international monetary fund was created to assist countries with balance of payment difficulties and monitor an adjustable peg system with […]

1) figure 2.3: refer to figure 2.3. suppose that the u.k agreed to peg its currency against the u.s. dollar at $2.00 per pound during the bretton woods system. assume that the u.s. increases its imports from the u.k. as […]

1) suppose that bank of america quotes you a buy rate of $1.50 per pound and a sell rate of $1.60 per pound. how much dollars would you receive, if you sell 1,000 british pounds to bank of america? a.$100 […]

1) assume that the united states faces a 5 percent inflation rate while the u.k has a 7 percent inflation rate. according to the relative ppp, the dollar would be expected to: a.appreciate by 2 percent against the british pound […]

1) assume that citibank quotes you a buy rate of $1.95 per pound and a sell rate of $1.98 per pound. how much will you pay in dollars, if you buy 1,000 pound from citibank? a.$505.05 b.$512.82 c.$1,950 d.$1,980 2) […]

1) political instability and currency conversion are reasons why ________ is more complicated for foreign subsidiaries than domestic ones. a.currency lagging b.capital budgeting c.patterning cash flows d.forward financing 2) which of the following would not be considered a source of […]

1) standardized contracts traded on established exchanges for delivery of currencies at a specified future date are called foreign currency futures. 2) relative prices only change when demand and supply for individual goods shift outwards. Answer: false 3) purchasing power […]

1) the expected exchange rate changes will be reflected in the differences between the term structure of interest rates in two countries. 2) suppose that the current buy rate for the japanese yen is 87.410 (yen/dollar) and the current sell […]

1) which of the following are reasons by the absolute ppp would not hold? i.consumer preferences ii.transaction costs iii.local taxes iv.company discounts a.ii only b.iv only c.i, ii, and iv d.i, ii, and iii 2) compared to domestic banks, eurobanks […]

1) due to fewer regulations domestic banks are able to offer a narrower spread than eurobanks. 2) pegging exchange rates at fixed levels by buying and selling to maintain the fixed rate by the central bank means that domestic and […]

1) exchange rate overshooting occurs because product prices are slow to change while asset prices adjust immediately. 2) the sum of the projects initial investment cost, the present values of cash flows, and all financial effects related to the investment […]

1) suppose that the one-year u.s. interest rate is 8% and the equivalent one-year india interest rate is 12%. according to covered interest parity, there is: a.forward discount on dollar b.forward premium on dollar c.forward premium for indian rupee d.forward […]

1) in the twin deficits hypothesis, to reduce a current account deficit, a country has to: a.increase domestic investment b.reduce private saving c.reduce government budget deficit d.all of the above are correct 2) a contract written by a bank to […]

1) a forward premium occurs when: a.the forward rate is greater than the spot rate b.the spot rate is greater than the forward rate c.the forward and spot rates are equal d.none of the above 2) the difference between the […]

1) assume the following: the current spot rate s$/£ = 2.00 and the annual interest rates: ius = 4% and iuk = 8%. according to covered interest parity, if an intern at a bank in u.k. sets the 90-day forward: […]

1) suppose that the 1-year forward rate of dollar per pound is $1.32, the current spot rate ($/pound) is $1.20, and the expected future spot rate ($/pound) is $1.40. the expected premium on the pound is: a.-6.7% b.5.7% c.10% d.16.7% […]

1) if mexico fully dollarizes its economy, it agrees to: a.print pesos only to finance deficits of its national government b.use the u.s. dollar alongside its peso to finance transactions c.have the u.s. treasury be in charge of its tax […]

1) assume floating exchange rates. suppose there are a 5% growth in u.s output and a 5% increase in foreign inflation. then, which of the following will offset these changes? a.10% increase in money supply b.10% decrease in money supply […]

1) if expected inflation in canada is higher than expected inflation in the u.k., and the real interest rates are equal, we would expect the canadian dollar to appreciate. 2) under mabp, the full effect of the monetary policy is […]

1) due to fewer regulations domestic banks are able to offer a narrower spread than eurobanks. 2) domestic currency devaluation always improves the balance of trade in the short run. Answer: false 3) capital budgeting refers to the evaluation of […]

1) a belgian company pays $100,000 to a consulting company in chicago for a consulting report. this causes a: a.credit in the u.s. investment income b.debit in the u.s. investment income c.credit in u.s. services d.debit in u.s. services 2) […]

1) information exposure is a type of foreign exchange risk. 2) the spread is the average of deposit and loan interest rates. Answer: false 3) in the uncovered interest rate parity, the forward rate is assumed to be the unbiased […]

1) consider the following variances of different stocks all with the same expected returns. which stock represents the riskiest choice? a.stock a: 0.03 b.stock b: 0.25 c.stock c: 0.005 d.stock d: 0.22 2) the u.s. economy is experiencing large trade […]

1) which of the follow are reasons for offshore banking? i.avoid high costs of domestic regulation ii.avoid government mandated credit allocations iii.avoid taxes on capital flows iv.avoid attempts to seize foreign deposits a.ii only b.i and iii c.i,ii, and iii […]

1) suppose the dollar is devalued. if an import contract is written in dollars, then the value of u.s. imports: a.decrease b.increase c.stay the same d.not possible to answer with the given information 2) the structure of interest rates existing […]

1) which of the following economies has adopted a currency board exchange rate system? a.malaysia b.south korea c.china d.hong kong 2) which of the following statement is correct? a.since 1974, the major industrial countries have operated under a system of […]

1) the theory of exchange rate overshooting explains high exchange rate volatility by assuming that cirp does not hold in the short run, but ppp does. 2) a stock market in which foreign investors are not allowed to buy domestic […]

1) for an investor, nonsystematic risk can be eliminated through: a.portfolio diversification b.avoiding transaction costs c.increased variance d.sterilization 2) suppose that the covered interest parity holds. if real interest rates are equal in two countries, then: a.the interest rate differential […]

1) to minimize transaction costs on foreign subsidiary profits in low-tax countries, firms may use transfer prices. 2) the prefix euro was added after the creation of the euro. Answer: false 3) the mabp implies that the change in international […]

1) when the leakages are ________ the injections, then the value of income received from producing goods and services will equal to total spending. a.greater than b.less than c.equal to d.the sum of 2) suppose that the one-year swiss interest […]

1) michael phelps, the u.s. olympic swimmer, spends $2,000 on traveling costs around england after the london olympic game. this is counted as: a.debit to services b.credit to services c.debit to unilateral transfer d.credit to unilateral transfer 2) an economy […]