1) which of the following are reasons by the absolute ppp would not hold?
i.consumer preferences
ii.transaction costs
iii.local taxes
iv.company discounts
a.ii only
b.iv only
c.i, ii, and iv
d.i, ii, and iii
2) compared to domestic banks, eurobanks have:
a.wider spreads
b.lower operating costs
c.limits on deposits
d.higher interest rates for loans
3) a forward discount occurs when:
a.the forward rate is greater than the spot rate
b.the spot rate is greater than the forward rate
c.the forward and spot rates are equal
d.none of the above
4) the covered interest rate parity (cirp) indicates that the interest rate differential is
(approximately) equal to___________.
a.expected premium
b.risk premium
c.forward premium
d.exchange rate premium
5) if the french demand for american exports rises, then
a.the euro should appreciate relative to the dollar
b.the dollar should depreciate relative to the euro
c.the dollar should appreciate relative to the euro
d.it is not clear whether the euro should appreciate or depreciate relative to the dollar
6) the following example supports which extension to the monetary approach to
exchange rates: the announcement of a new trade deal between south korea and japan,
lead investors to predict that japan may be a path to a trade deficit. thus, the japanese
yen saw an immediate decline in value.
a.portfolio balance approach
b.trade balance approach
c.news approach
d.currency substitution approach
7) which of the following is not a method to restore a balance of payments equilibrium
in a surplus country?
a.government mandated quotas
b.accumulate international reserves
c.allow the use of flexible exchange rates
d.price controls
8) capital market segmentation is a financial market imperfection caused mainly by:
a.government regulations
b.high transactions costs
c.political risk
d.all of the above contribute to the imperfection in financial markets.
9) suppose that north korea has closed off its capital market from the rest of the world.
no resident is allowed to invest outside north korea and no foreigner is allowed to invest
in north koreas capital market. in this case, the bp curve will be:
a.upward-sloping curve
b.downward-sloping curve
c.horizontal curve
d.vertical curve
10) which of the following features describe the futures market for foreign exchange?
i.tailored size contracts
ii.small amount contracts
iii.tailored maturities
iv.large amount contracts
a.ii only
b.iv only
c.i, ii, and iii
d.i, iii, and iv