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 supply
2) suppose that the one-year u.s. interest rate is 10%. if the one-year forward rate
against the pound is $1.52 per pound and the spot exchange rate is $1.50 per pound,
what must the equivalent british interest rate be according to the approximate covered
interest parity?
a.8.67%
b.9.95%
c.10%
d.11.33%
3) big can, inc., a u.s. firm, manufactures and sells aluminum cans worldwide. because
of a rising price of aluminum in the u.s., the company is considering to build a new
plant in europe. the plant will cost 20 million to build. assume that the plant will have a
life of 3 years before it is confiscated by the european government (zero salvage value)
and the discount rate of the cash flows is 10%. consider the following cash flows for
this project.
table 9-2
refer to table 9-2. the net present value (npv) of this project in u.s. dollar is estimated at:
a.- $0.11million
b.- $1.27 million
c.$2.33 million
d.$1.14 million
4) boeing, inc. sold an airplane to singapore airlines for sgd100 million (singapore
dollars) with terms of one-year payment. the current spot rate $0.25 per sgd. boeing
expects to exchange sgd100 million at next years spot rate when payment is received. if
the spot rate for the sgd declines to $0.24 one year from today, what is boeings potential
transaction gain or loss?
a.transaction gain of $1 million
b.transaction gain of $2 million
c.transaction loss of $1 million
d.transaction loss of $2 million
5) during the gold standard, national money supplies were constrained by:
a.international treaties
b.the growth of trade
c.commodity indexes
d.the growth of the stock of gold
6) eurocurrency market is attractive for multinational firms because:
a.it provides cheap eurocurrency loans as alternative payment form for importers
b.it serves as a place to store excess liquidity because of higher returns on deposits
c.it offers lower cost working capital due to no taxes, no regulations, and no required
reserves
d.all of the above are correct
7) imf conditionality refers to:
a.policy changes that government in a borrowing country has to make in order to
borrow from the imf
b.the imfs guidelines to disburse foreign aid to developing countries
c.conditions that a country has to follow in order to become a member in the imf
d.the rescue package that the imf gives out for free to country in crisis
8) if the residents of a country receive money from their relatives living abroad, it will
be counted as:
a.credit in the current account
b.debit in the current account
c.credit in the capital account
d.debit in the capital account
9) one dollar is worth ¥80, and one thai baht is worth ¥2.5. how many thai baht do you
need to buy a dollar?
a.0.03125 baht
b.0.005 baht
c.32 baht
d.200 baht
10) a currency is at a ________ when its interest rate is ________ than the interest rate
in the other country.
a.forward flat, lower
b.forward discount, lower
c.forward discount, higher
d.forward premium, higher
11) under the flexible exchange rate, an increase in the foreign price level leads to a
domestic currency __________.
a.appreciation
b.depreciation
c.devaluation
d.overshooting