1) suppose the central bank pursues restrictive monetary policy. then:
a.the is curve shifts right
b.the is curve shifts left
c.the lm curve shifts right
d.the lm curve shifts left
2) suppose russia’s inflation rate is 200% over one year but the inflation rate in
switzerland is only 2%. according to relative ppp,
a.the russian ruble should depreciate against swiss franc by 198 percent
b.the russian ruble should appreciate against swiss franc by 198 percent
c.the russian ruble should depreciate against swiss franc by 202 percent
d.the russian ruble should depreciate against swiss franc by 202 percent
3) what is libor?
a.the average of london interest rate spreads
b.the interest rate that only eurobanks use
c.the average of a sample of interest rates that large banks face to borrow from each
other
d.the interest rate that london banks use for deposits
4) suppose that the one-year u.s. interest rate is 7% and the one-year swedish interest
rate is 10%. if the current spot rate is 80 swedish krona per dollar, what must the
one-year forward rate (skr/$) be according to the approximate covered interest parity?
a.6.596
b.6.720
c.7.004
d.7.276
5) what is seignorage?
a.the reward for holding foreign currency reserves
b.the difference between printing money and the return to the assets it acquires
c.the special interest rates associated with special drawing rights
d.the process of adopting a currency peg
6) why was the european monetary system established?
a.to establish a common currency (the euro)
b.to peg all member currencies to the swiss franc
c.to maintain small exchange rate fluctuation among member countries
d.to unite the coal and steel workers in france and germany
7) if the expected inflation in brazil in higher than the expected inflation in the u.s., and
the real interest rates are equal across countries, then we would expect the brazilian real
(brazils currency) to:
a.appreciate
b.depreciate
c.remain the same
d.depreciate and then appreciate later
8) figure 13-1
refer to figure 13-1. in a flexible exchange rate regime, if an economy is experiencing
external disequilibrium at point b, then the domestic currency will:
a.depreciate, shifting the is curve to the right
b.depreciate, shifting the is curve to the left
c.appreciate, shifting the is curve to the left
d.depreciate, shifting the lm curve to the right
9) for unfair trade to be a reasonable explanation for the u.s. trade deficit then it is
reasonable that
a.foreign countries must have simultaneously increased trade protection in 1982
b.u.s. manufacturing must have experienced a sharp decline in the years preceding 1982
c.foreign interest rates must have decreased the value of the u.s. dollar in 1982
d.foreign countries must have simultaneously reduced trade protection in 1982
10) suppose that bank of america quotes you a buy rate of $1.50 per pound and a sell
rate of $1.60 per pound. if you sell 1,000 british pounds to bank of america, bank of
america will have too many british pounds. to square off:
a.the bank has to increase both the buy and sell rates
b.the bank has to increase the buy rate but lower the sell rate
c.the bank has to lower the buy rate but increase the sell rate
d.the bank has to lower both the buy and sell rates
11) efficiency in the eurocurrency market comes from all of the following except
a.higher profits for eurobanks
b.low cost borrowing
c.free entry of new banks
d.lack of government regulation
12) assume that the u.s. has an 8 percent inflation rate while mexico has a 4 percent
inflation rate. according to relative ppp, the dollar would be expected to:
a.appreciate by 2 percent against the mexican peso
b.depreciate by 2 percent against the mexican peso
c.appreciate by 4 percent against the mexican peso
d.depreciate by 4 percent against the mexican peso
13) figure 2.3:
refer to figure 2.3. suppose that the spot exchange rate of british pound is $2.00 per
pound. suppose that the u.s. decreases its imports from the u.k. under flexible exchange
rate system, the bank of england will:
a.let the british pound appreciates
b.let the british pound depreciates
c.sell pounds and buy dollars in foreign exchange market
d.sell dollars and buy pounds in foreign exchange market
14) typically, the lm curve is:
a.horizontal
b.vertical
c.downward-sloping
d.upward-sloping
15) a call option with a strike price less than the current spot price is said to be _____.
a.non-exercisable
b.in-the-money
c.out-of-the-money
d.at-the-money
16) according to the general equilibrium approach of open-economy macroeconomic
model, if south korea had a significant technological progress in the past decade, which
allowed them to produce more goods at much lower prices than the rest of the world,
then we would expect the korean won to __________.
a.appreciate
b.depreciate
c.stay the same
d.none of the above is correct, since productivity has nothing to do with exchange rate
17) table 6-2: spot and forward exchange rates on may 5, 2012
refer to table 6-2. on may 5, 2012, the 1-month forward pound was selling at a:
a.9.52% premium per annum against the dollar
b.114.24% premium per annum against the dollar
c.9.52% discount per annum against the dollar
d.114.24% discount per annum against the dollar
18) interest rates on ________ are lower at eurobanks than domestic banks.
a.loans
b.deposits
c.currency exchanges
d.none of the above
19) if the domestic currency is devalued and both export and import contracts are
written in foreign currency, then the trade balance will:
a.increase
b.decrease
c.stay the same
d.uncertain
20) when the ________ of two assets is _______, then the two variables move in
opposite directions: when one rises the other falls.
a.covariance, negative
b.covariance, positive
c.variability, negative
d.variability, positive