1) a forward premium 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
2) the difference between the balance on current account and the balance on capital
account is:
a.the balance of payment
b.statistical discrepancy
c.the balance of trade
d.official settlements balance
3) let i be the nominal interest rate, is real interest rate, and is the expected rate of
inflation. the fisher equation is:
a.
b.
c.
d.
4) if people expect the domestic currency to depreciate against foreign currency in the
near future, they will immediately shift from _______ currency to ______ currency,
causing an immediate _________ of the foreign currency.
a.domestic; foreign; appreciation
b.domestic; foreign; depreciation
c.foreign; domestic; appreciation
d.foreign; domestic; depreciation
5) the balance on current account includes all of the following items except:
a.merchandise exports minus merchandise imports
b.exports of services minus imports of services
c.income receipts minus income payments on investments
d.changes in u.s. assets owned abroad and foreign assets owned in the u.s.
6) investors often hold ________ to reduce risk associated with investments.
a.domestic currency contracts
b.letters of credit
c.diversified portfolios
d.forward contracts only
7) the ________ measures changes in financial assets held by foreign monetary
agencies and official reserve asset transactions.
a.monetary exchange board
b.unilateral account balance
c.official settlements balance
d.currency balance sheet
8) assume that the one-month forward rate is 2.02 dollars per pound and the spot rate is
2.00 dollars per pound. calculate the annualized percentage forward premium (or
discount) for the pound.
a.12 percent discount
b.12 percent premium
c.144 percent discount
d.144 percent premium
9) which of the following statements is true?
i.diversification is a process of removing systematic risk from a portfolio.
ii.diversification is a process of maximizing possible returns of a portfolio.
a.only i is true
b.only ii is true
c.both i and ii are true
d.neither i nor ii are true
10) figure 1.2
refer to figure 1.2. suppose that the market for euro is initially in equilibrium at point a
with the exchange rate $2.00 per euro. then the supply curve shifts to s2. if the european
central bank wants to fix the exchange rate at $2.00/euro, there will be ________ of
euro and the euro is __________.
a.excess supply; overvalued
b.excess supply; undervalued
c.excess demand; overvalued
d.excess demand; undervalued