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 approximate covered interest parity?
a.0.675
b.0.730
c.0.770
d.0.825
2) rising income in china triggers an increase demand for u.s. imported goods by
chinese households. this causes ________ chinese yuan and yuan should_________
against the dollar.
a.an increase in the demand for; appreciate
b.an increase in the demand for; depreciate
c.an increase in the supply of; appreciate
d.an increase in the supply of; depreciate
3) when the forward price of a currency ________ the spot price, the currency is said to
sell at a ________.
a.greater than, flat
b.greater than, discount
c.less than, discount
d.less than, premium
4) suppose that under a gold standard, that the price of gold in the united states is $450
per ounce and the price of gold in the united kingdom is 200£ per ounce. the exchange
rate is thus:
a.2.25£ per dollar
b.$0.45 per pound
c.$2.25 per pound
d.1£ per dollar
5) which of the following describe ways that a business manages foreign exposure?
i.hedge in the futures market
ii.hedge in the options market
iii.slow payments of currencies expected to appreciate
iv.slow collections of currencies expected to depreciate
a.i only
b.i and ii
c.iii and iv
d.ii, iii, and iv
6) a japanese store buys apple ipods shipped from the u.s. causes a:
a.credit in the u.s. merchandise account
b.debit in the u.s. merchandise account
c.credit to u.s. investment income
d.debit to u.s. investment income
7) assume floating exchange rates. suppose there are a 5% growth in u.s output and the
fed increases in u.s. money supply by 5%. then, which of the following will offset these
changes?
a.10% increase in exchange rate
b.10% decrease in exchange rate
c.10% increase in the foreign inflation
d.the two changes offset each other
8)
9) suppose the exchange rate between the u.s. dollar and the british pound is initially
2.00 dollars per pound. according to relative purchasing-power parity, if the price of
traded goods rises by 10 percent in the united states and remains constant in the u.k, the
exchange rate will become:
a.1.80 dollars per pound
b.1.98 dollars per pound
c.2.02 dollars per pound
d.2.20 dollars per pound
10) which of the following policy examples does not reduce the domestic absorption?
a.collect higher taxes on luxurious goods
b.raise interest rates on loans
c.give income tax rebates to households
d.cut government employees pension payments
11) the current account balance measures all of the following except:
a.foreign cash payments
b.goods imports and goods exports
c.net receipts of investment income
d.unilateral transfers
12) assume that the 6-month ius = 10% and the 6-month iswiss = 20%, and the spot rate
is $1.20 per swiss franc. using the approximate covered interest rate parity condition,
the 6-month forward rate ($/swiss franc) is:
a.1.08
b.1.14
c.1.26
d.1.32
13) when citizens anticipate a country to experience trade deficits in the near future, the
domestic currency would:
a.appreciate immediately
b.appreciate only in the future
c.depreciate immediately
d.depreciate only in the future
14) a u.s. firm has a 1 million payment due to a dutch firm in 90 days. the current spot
rate is $1.00 per euro, and the 90-day forward rate is $1.11. ben forecasts that the spot
rate in 90 days will be $0.99. jerry forecasts that the spot rate will be $1.12 in 90 days.
the actual spot rate in 90 days turns out to be $1.10. if the u.s. firm follows bens
forecast, it would:
a.buy euro in the forward market at$1.11
b.wait and buy euro 90 days later at $1.10
c.buy euro now at $1.12 and let it sit in the companys safe
d.wait and buy euro in the forward market 90 days later at $1.11
15) figure 1.1
refer to figure 1.1. suppose that the market for british pound is initially in equilibrium at
point a with the exchange rate $2.00 per pound. when the demand curve shifts to d2, the
pound ___________ and the quantities of pound traded in the market __________.
a.appreciates; increases
b.appreciates; decreases
c.depreciates; increases
d.depreciates, decreases
16) for an investor who starts with dollars and wants to end up with dollars in the
future, which of the following choices is an example of uncovered international
investment?
a.sell dollars at the spot rate, invest the proceeds in foreign currency-denominated
financial instruments, and sign a forward exchange contract to buy the foreign currency
b.sell dollars at the spot rate, invest the proceeds in foreign currency-denominated
financial instruments, and sign a forward exchange contract to buy dollars
c.sell dollars at the spot rate, invest the proceeds in foreign currency-denominated
financial instruments, and then buy dollars at the future spot rate
d.buy a dollar-denominated financial asset
17) which of the following are advantages of netting?
v.avoiding transaction costs
vi.shifting profits to different subsidiaries
vii.avoiding taxes for the parent firm
viii.increasing flexibility in the parent firm
a.i only
b.ii only
c.i and iv
d.ii, iii, and iv