1) if mexico fully dollarizes its economy, it agrees to:
a.print pesos only to finance deficits of its national government
b.use the u.s. dollar alongside its peso to finance transactions
c.have the u.s. treasury be in charge of its tax collections
d.replace pesos with u.s. dollars in its economy
2) a(n) ________ letter of credit where the agreement cannot be modified without the
express permission of all parties is considered:
a.completed
b.irrevocable
c.revocable
d.drafted
3) the ________ in the forward exchange market is equal to the effective return
differential.
a.strike price
b.exposure risk
c.future spot exchange rate
d.risk premium
4) which of the following is not a reason why capital budgeting for a foreign project is
more complicated than a domestic project?
a.cash flows from the foreign project have to be converted into the domestic currency
b.the foreign project can be affected by political instability in foreign country
c.the foreign project involves larger amount of working capital than the domestic
project
d.the foreign project can be affected by different foreign taxes and regulations
5) forward premiums and discounts are quoted in annualized form because:
a.the imf mandates this practice
b.unlike options contracts, forward contracts are always one year in length
c.purchases are balanced every fiscal year
d.comparisons to interest rate returns are easier
6) which of the following is not a factor that causes substantial exchange rate volatility?
a.unexpected news
b.changes in expectations about future trade flows
c.instantaneous adjustments by goods and services prices to shocks
d.instantaneous reactions by financial assets markets to shocks
7) if an american company deposited dollars in a belgian bank, the dollars would be
considered:
a.euros
b.euroeuros
c.belgian dollars
d.eurocurrency
8) a u.s. car company builds a factory in mexico causes a:
a.debit in u.s. services
b.debit in the u.s. unilateral transfers
c.debit in the u.s. private capital account
d.credit in u.s. private capital account
9) suppose that the one-year u.s. interest rate is 10%. if the one-year forward rate
against the pound is $1.52 per pound and the spot exchange rate is $1.50 per pound,
what must the equivalent british interest rate be according to the approximate covered
interest parity?
a.8.67%
b.9.95%
c.10%
d.11.33%
10) the official holdings of gold and foreign exchange, special drawing rights (sdrs),
and changes in reserves at the international monetary fund are known as:
a.official settlements balance
b.central bank holdings
c.current account balance
d.capital account balance
11) which of the following reasons does not support the home-bias theory?
a.nationalism support of home stock
b.knowledge about domestic firms
c.knowledge about foreign firms
d.stocks measured against local conditions
12) assume the following:
you have $10,000 to invest.
the current spot rate: s$/£ = 2.00, the 90-day forward: f90$/£ = 1.80, annual interest
rates: ius = 4% and iuk = 8%.
if you invest $10,000 in the u.s. for 90 days, you will get $____________. if you invest
in the u.k. and cover in the forward market for 90 days, you will get $__________.
a.$10,100: $10,098
b.$10,400: $9,720
c.$10,100: $10,133
d.$10,400: $10,692
13) when chinas central bank authorities acquire u.s. dollars faster than the federal
reserve bank acquires chinese yuan, then the percentage change of u.s. international
reserves ():
a.decreases
b.increases
c.stays the same
d.increases first and then decreases