1) in the twin deficits hypothesis, to reduce a current account deficit, a country has to:
a.increase domestic investment
b.reduce private saving
c.reduce government budget deficit
d.all of the above are correct
2) a contract written by a bank to guarantee that the bank will pay the exporter the
amount of money owed by the importer is called a:
a.letter of credit
b.export contract
c.import contract
d.contract guarantee
3) when a country ________, it supplies foreign exchange as payment.
a.imports
b.exports
c.borrows
d.lends
4) which of the following was not a contributing factor in the 1997 asian financial
crisis?
a.currencies fixed to the u.s. dollar
b.large capital inflows
c.significantly undervalued currencies
d.current account deficits
5) which of the following is correct about libor?
a.there is no possible way that bankers can manipulate the libor setting
b.libor is the second most important interest rate in the world, after the prime rate of the
u.s
c.every morning the british bankers association averages the submitted interest rates
from a group of large london banks
d.libor is the most active and most watched stock in london stock exchange
6) in the presence of purchasing-power parity, if one dollar exchanges for one euro and
a new laptop sells for $750 in new york, then the identical laptop in paris should cost:
a.400 euros
b.600 euros
c.750 euros
d.1000 euros
7) the exchange rate is
a.the price of one currency relative to gold
b.the value of a currency relative to inflation
c.the change in the value of money over time
d.the price of one currency relative to another
8) suppose that the one-year u.s. interest rate is 9% and the one-year u.k. interest rate is
8%. if the current spot rate is $70 per pound, what must the one-year forward rate
($/pound) be according to the approximate covered interest parity?
a.$1.683
b.$1.717
c.$1.723
d.$3.400
9) _________ is the dollar bank accounts outside the u.s.
a.banking outsource
b.eurodollar
c.dollardollar
d.black market
10) the ________ interest rate is equal to the ________ interest rate minus the expected
rate of inflation.
a.real, nominal
b.predicted, nominal
c.standard, nominal
d.nominal, standard
11) suppose the dollar is devalued. if an export contract is written in dollars, then the
value of u.s. exports:
a.decrease
b.increase
c.stay the same
d.not possible to answer with the given information
12) suppose that the 1-year forward rate of dollar per swiss franc is $0.42, the current
spot rate ($/sfr) is $0.40, and the expected future spot rate ($/sfr) is $0.45. the expected
premium equals to:
a. 7.5%
b.5%
c.6.67%
d.12.5%
13) what kind of currency exchange system will prevent the balance of payments from
being automatically balanced?
a.monetary unions
b.fixed exchange rate
c.floating
d.managed floating
14) deviations from interest rate parity could be the result of:
a.different tax treatment of income and foreign exchange earnings
b.political risk
c.transaction costs
d.all of the above are correct
15) currency plus commercial bank reserves held against deposits:
a.base money
b.temporary money
c.international credit
d.domestic reserves
16) suppose that the spot exchange rates for british pound quoted in two locations are:
suppose that you have £1 million, how much arbitrage profit can you make?
a.£-30,674.85
b.£12,658.23
c.£31,627.64
d.£51,612.90
17) assume that the following exchange rates exist.
suppose that you are an arbitrageur that starts with $100 in new york. how much
arbitrage profit can you make?
a.$0
b.$50
c.$100
d.$150
18) which of the following best describe the process of overshooting when money
supply increases?
a.exchange rates depreciate more than necessary due to overreaction in financial
markets, but are restored as prices fall in response to the greater money supply
b.exchange rates depreciate more than necessary due to overreaction in financial
markets, but are restored as prices rise in response to the greater money supply
c.exchange rates appreciate more than necessary due to overreaction in financial
markets, but are restored as prices rise in response to the greater money supply
d.exchange rates appreciate more than necessary due to overreaction in financial
markets, but are restored as prices fall in response to the greater money supply
19) table 6-1: spot and forward exchange rates on may 5, 2012
refer to table 6-1. on may 5, 2012, the 3-month forward yen was selling at a:
a.2.43% premium per annum against the dollar
b.9.72% premium per annum against the dollar
c.2.43% discount per annum against the dollar
d.9.72% discount per annum against the dollar