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
iv.can be resold
a.i only
b.ii only
c.i and iv
d.i, ii, and iv
3) remittances by foreigners in the u.s., pension paid and aid offered by the u.s. to its
citizens living abroad are examples of:
a.reserve asset transfers
b.investment income
c.export of services
d.unilateral transfers
4) suppose that the one-year u.s. interest rate is 8% and the one-year swiss interest rate
is 10%. if the current spot rate is $1.50 per swiss franc, what must the one-year forward
rate ($/sfr) be according to the approximate covered interest parity?
a.$1.47
b.$1.50
c.$1.53
d.$4.50
5) interest rates on eurodollar loans may be lower than those on loans in the u.s.
because:
a.eurobanks only lend to government agencies
b.eurobanks have no regulatory expenses
c.eurobanks have to hold a larger percentage of their deposits to prevent bank runs
d.eurobanks only lend to americans outside the u.s
6) when the united states suspended the convertibility of dollars into gold in 1971, this
lead to:
a.the collapse of the bretton woods system
b.creation of the regional currency boards
c.creation of the international monetary fund
d.all of the above
7) the imfs view of conditionality is that:
a.the adjustments required are those that promote long-run growth
b.borrowing countries should be penalized during the borrowing period
c.adjustments ensure that the imf can earn a profit
d.the support of the imf will encourage growth
8) 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 ________ on
the swiss franc.
a.1% forward discount
b.1% forward premium
c.9% forward discount
d.forward flat
9) the evaluation of a countrys overall political and financial situations that may
influence the countrys ability to repay its loans is called:
a.country risk analysis
b.foreign investment forecasting
c.capital budgeting
d.investment projecting
10) let y be domestic income, c be consumption, i be investment, g be government
spending and t be taxes. the private saving pluses public saving equal to:
a.y c t g
b.y i
c.y c t
d.y c g
11) suppose for two currencies the forward premium is 8.5% and the expected premium
is 5%. then the risk premium is:
a.-13.5%
b.-3.5%
c.3.5%
d.13.5%
12) assume that a country is at full employment and wants to improve its trade deficit
by
devaluing its currency. using the absorption approach which of the following methods
will improve the trade deficit?
i.increase government spending
ii.increase consumption taxes
iii.increase income taxes
a.i and ii
b.i and iii
c.ii and iii
d.none
13) sterilized intervention is the policy that:
a.targets a domestic inflation rate within a certain range of values
b.attempts to influence exchange rate movements with official statements on the
governments preferred rate, without taking any direct action in the financial markets
c.coordinates monetary and fiscal policies with ones trading partners so as to achieve
particular international economic outcomes
d.offsets private capital movements with changes in the asset portfolio of the central
bank