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 they did in the past. if the swiss
central bank wants to keep the swiss franc fixed at $0.85 per swiss franc, it will have to
intervene by buying up swiss francs and selling dollars.
3) an expansionary monetary policy shifts the lm curve to the right and causes the
domestic interest rate to rise.
4) the imf has included a clause of anti-corruption into its lending process.
5) if the inflation rates of two countries are both equal to the percentage change in the
exchange rate, then absolute purchasing power parity holds.
6) suppose that the one-year u.s. interest rate is 3% and the equivalent one-year swiss
interest rate is 3%. according to the covered interest rate parity, there is a forward flat
on the swiss franc.
7) high-inflation countries rarely see purchasing power parity hold over time because of
relative price changes.
8) under the monetary approach to exchange rate, a rise in domestic income will cause a
depreciation of domestic currency.
9) investment income, unilateral payments, and the value of trade of merchandise and
services define the current account.
10) the exchange market has seen the rise of new contracts combines features of
forward contracts and option contracts.
11) an option contract requires an up-front premium payment.
12) the equivalence of the interest differential between two currencies to the forward
premium or discount is known as interest rate parity.
13) 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.
14) a trade surplus occurs when the current account is greater than the capital account.
15) under the monetary approach to exchange rate, a rise in domestic money supply will
cause a depreciation of domestic currency.
16) suppose country x experienced a financial crisis. one contributing factor to the crisis
was the sudden increase in the cost of fuel in the country. this is an example of a(n):
a.chronic current account deficits
b.external shock
c.fixed exchange system
d.over dependence on foreign capital
17) if the portfolio balance approach is true then which of the following will directly
lead to changes in the exchange rate?
a.a monetary policy announcement
b.a fiscal policy announcement
c.a shift in the demand for foreign bonds
d.a shift in the relative cost of a substitute currency
18) suppose that the u.s. dollar price of a big mac is $3.57. the price of a big mac in
norway is 25 kroner. suppose that the current exchange rate is 5.00 krone per dollar. if
absolute ppp holds, the ppp-implied exchange rate is _______ and krone is ________.
a.5.00 krone per dollar; overvalued
b.5.00 krone per dollar; undervalued
c.7.00 krone per dollar; overvalued
d.7.00 krone per dollar; undervalued
19) assume that the dollar value of a swiss franc is 0.8600 (dollar per franc), and that
u.s. importers start to like swiss watches more than they did in the past. the swiss franc
would:
a.appreciate, as the demand curve of swiss franc shifts to the right
b.depreciate, as the demand curve of swiss franc shifts to the right
c.depreciate, as the demand curve of swiss franc shifts to the left
d.appreciate, as the supply curve of swiss franc shifts to the right
20) in the presence of purchasing-power parity, if five pesos exchange for one dollar
and a new smartphone sells for $100 in dallas, then the identical smartphone in mexico
city should cost:
a.20 pesos
b.80 pesos
c.250 pesos
d.500 pesos
21) using the is-lm-bp model with the perfect capital mobility assumption to answer this
question. which of the following statements is true?
i.in a floating exchange rate regime, fiscal policy is effective in stimulating income.
ii.in a floating exchange rate regime, monetary policy is effective in stimulating
income.
a.only i is true
b.only ii is true
c.both i and ii are tru
d.neither i nor ii is true
22) assume two countries, a and b have the following fisher equations, where i is
nominal interest rate, r is real interest rate, and is the expected rate of inflation:
spot and forward rates are expressed as currency a per currency b. when the covered
interest parity holds and , then
a.
b.
c.
d.
23) according to the _______, high exchange rate volatility is explained by the failure
of ppp to hold in the short run.
a.overshooting approach
b.news approach
c.portfolio-balance approach
d.trade balance approach
24) ________ refers to buying and selling currencies to be delivered at a future date.
a.the currency swap market
b.the forward market
c.the default swap market
d.the options market
25) when the central bank increases the money supply,
a.the money supply curve shifts to the left and interest rate rises
b.the money supply curve shifts to the left and interest rate falls
c.the money supply curve shifts to the right and interest rate rises
d.the money supply curve shifts to the right and interest rate falls
26) which of the following is considered a capital inflow?
a.a sale of u.s. financial assets to a foreign buyer
b.a loan from a u.s. bank to a foreign borrower
c.a purchase of foreign financial assets by a u.s. buyer
d.a u.s. citizens repayment of a loan from a foreign bank
27) consider the following variances of different stocks all with the same expected
returns. which stock represents the best choice for a risk averse investor?
a.stock a: 0.03
b.stock b: 0.25
c.stock c: 0.005
d.stock d: 0.22
28) consider the following scenario. the swiss franc is operating under a managed float
exchange system. under this system, what actions can the swiss central bank take to
influence the current exchange?
a.purchase or sell foreign currencies to bring the currency in line with its desired value
b.announce a new target exchange rates
c.commit to a new fixed rate against the current basket of foreign currencies
d.set guidelines for when inflationary pressures will force action on money supply
changes
29) what is the eurocurrency market?
a.a market in which the domestic currency is exchanged for international deposits and
loans
b.a currency exchange for the purchasing and selling of euros
c.a market in which the loans are purchased in the domestic currency and repaid in the
future with euros
d.a market in which international deposits and loans are exchanged in a currency other
than the domestic currency
30) what financial instruments allow firms to obtain long-term foreign currency
financing at lower cost than they can by borrowing directly?
a.currency swaps
b.forward rates
c.foreign currency options
d.future contracts
31) when the central bank increases the money supply,
a.the money supply curve shifts to the left and interest rate rises
b.the money supply curve shifts to the left and interest rate falls
c.the money supply curve shifts to the right and interest rate rises
d.the money supply curve shifts to the right and interest rate falls
32) which forecasting technique uses a fundamental-based model with information that
is thought to be important to changes in exchange rates?
a.structural
b.hedging
c.atheoretical
d.flow
33) general motors, a u.s. firm, withdraws $100 million from bank of america in new
york and deposits $100 million with eurobank x in the bahamas. then, eurobank x
deposits $100 million in eurobank y in switzerland. a swiss chocolate, inc. borrows
$100 million from eurobank y to finance a new plant construction.
at the end, these transactions would make the gross deposits in the eurodollar market to
be _______.
a.$100 million
b.$200 million
c.$300 million
d.$400 million
34) according to the law of one price, identical goods will have the same price in
different markets when the prices are expressed in the same currency if:
a.both currencies are fixed
b.both currencies are floating
c.there are no transaction costs and trade barriers
d.trade barriers protect arbitrary price changes
35) the home-bias puzzle could be used to describe:
a.the gains investors earn when over investing in foreign markets
b.the lack of international diversification in the united states
c.the increased preference for high variance investments in the domestic market
d.the surprisingly low level of domestic investment in the united states