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 variables in the
monetary approach becomes zero and is dropped out of the equation?
a.percentage change in domestic credit
b.percentage change in spot exchange rate
c.percentage change in foreign reserves
d.percentage change in money demand
3) under an assumption of perfect capital mobility, suppose that international investors
perceive the u.s. assets to be riskier than other countries during the great recession of
2008-09. the bp curve for the u.s would:
a.have upward slope
b.have downward slope
c.shift downward by the distance of risk premium
d.shift upward by the distance of risk premium
4) you have accessed the following spot rates:
u.s. dollar per pound = 1.50
yen per u.s. dollar = 100.0
what is the exchange rate yen per pound?
a.0.01 yen per pound
b.0.015 yen per pound
c.66.67 yen per pound
d.150 yen per pound
5) which of the following is not a possible bid/ask quotation for the thai baht?
a.$.50/$.51
b.$.49/$.50
c.$.52/$.51
d.all of the above are possible bid/ask quotations
6) the j-curve illustrates which of the following?
a.the effect of a devaluation on an economys income
b.the immediate increase in the current account after a devaluation
c.the gradual adjustment of the trade balance in response to a devaluation
d.the gradual adjustment of prices after currency devaluation
7) an investor is considering a portfolio consisting of 60% invested in stock x and 40%
invested in stock y. the expected returns for the stocks are 10% for stock x and 8% for
stock y. variance of the stock returns are 0.04 for stock x and 0.02 for stock y, and a
covariance of -0.01 between the two stocks.
what is the variance of the proposed portfolio?
a.0.0128
b.0.0152
c.0.0224
d.0.0272
8) which of the following statements is not true about the eurocurrency market?
a.it is a market for any currency held in a short-term deposit outside the country of
origin
b.it has no reserve requirements or deposit insurance
c.it is a large, unregulated market for any currency traded in europe
d.it is a market that accepts deposits and makes loans in foreign currencies outside the
country of issue
9) letters of credit are used because:
a.subsidiaries often have little capital
b.profits are taxed differently in different countries
c.contracts are difficult to enforce internationally
d.they prevent seizures by foreign governments
10) according to the monetary approach of the balance of payments (mabp), an increase
in u.s. money supply growth will cause the u.s. foreign reserves ():
a.to fall, as foreign central bank selling its currency and buying u.s. dollars
b.to fall, as foreign central bank selling u.s. dollars and buying its currency
c.to rise, as foreign central bank selling its currency and buying u.s. dollars
d.to rise, as foreign central bank selling u.s. dollars and buying its currency
11) assume the following: the current spot rate s$/£ = 2.00 and the annual interest rates:
ius = 4% and iuk = 8%. according to covered interest parity, if an intern at a bank in u.k.
sets the 90-day forward: f90$/£ = 1.80, then:
a.the intern has correctly set the forward rate
b.both u.s. and u.k. investment returns are equal
c.the british investment return exceeds the u.s. investment return
d.the u.s. investment return exceed the british investment return
12) which of the following prices indices can be used in determining purchasing-power
parity?
a.producer price index
b.consumer price index
c.gdp deflator
d.all of the above
13) a contributing factor in the latin american debt crisis 1982 was:
a.the significant devaluation of the dollar
b.declining expectations led to capital flight
c.falling oil prices lead to defaults by oil companies
d.a sudden increase of capital inflows leading to currency devaluation
14) consider two securities known as security a and b. if returns on security a decrease
10% while returns on security b also decrease 10%, then the correlation coefficient is:
a.positive
b.negative
c.zero
d.impossible to determine
15) the value of libor is determined by
a.the british bankers associtation
b.the eurocurrency market
c.the international monetary fund
d.the financial exchange in new york
16) which of the following are possible explanations for incomplete portfolio
diversification?
i.risk aversion
ii.home bias
iii.foreign bias
iv.political risk
a.i and ii
b.ii and iv
c.i, iii, and iv
d.i, ii, and iv
17) ___________ is the effect on exchange rates when traders alter quotes to maintain a
balance between amounts of currency bought and sold to square off at the end of a day.
a.inventory control effect
b.inside information effect
c.order flow effect
d.asymmetric information effect
18) if a watch costs $50 in the u.s. and 100 swiss francs in switzerland and the exchange
rate is 2.25 swiss franc per dollar, then the dollar is:
a.correctly valued according to ppp
b.undervalued relative to ppp
c.overvalued relative to ppp
d.not enough information to find answer
19) which of the following are considered in country risk analyses?
i.economic growth
ii.amount of natural resources
iii.diversity of exports
iv.quality of education
a.i only
b.ii only
c.i and iii
d.ii and iv
20) which of the following is a warning indicator of a potential financial crisis?
a.transparency in government operations
b.floating exchange system
c.decline in foreign reserves
d.all of the above are warning indicators