1) if expected inflation in canada is higher than expected inflation in the u.k., and the
real interest rates are equal, we would expect the canadian dollar to appreciate.
2) under mabp, the full effect of the monetary policy is felt on the exchange rate.
3) inflation from one country can be transmitted to another if a floating exchange rate is
being used.
4) the risk present in all investment opportunities is known as systematic risk.
5) the absorption approach to the balance of trade is concerned with how changing
relative prices of domestic and foreign goods will change the balance of trade.
6) corruption practices by government officials threatens market integrity, distorts
competition, and endangers economic development.
7) the imf uses conditionality to punish lender countries following financial crises.
8) the european monetary system was established in 1979 to form a common currency
for all member countries to be managed by a european central bank.
9) the exchange rate that is actually observed in the foreign exchange market is called
the real exchange rate.
10) if expected inflation in canada is higher than expected inflation in the u.k., and the
real interest rates are equal, we would expect the canadian dollar to appreciate.
11) purchasing power parity (ppp) explains the relationship between interest rates and
product price changes.
12) suppose banana computers has a foreign subsidiary with a 3 million pound payable
due on october 1, as well as 2 million pound receivable due on september 1. one way
the firm could avoid transaction costs is:
a.lagging currency flows
b.capital budgeting
c.risk analysis
d.transfer pricing
13) current account deficits are offset by capital account ________.
a.assets
b.revenues
c.surpluses
d.imports
14) forward-looking market instruments are used to:
a.reduce traders exchange rate risk
b.manage the flow of imports and exports
c.adjust the price of tariffs
d.assist central banks in managing floating currencies
15) figure 13-1
refer to figure 13-1. starting from an equilibrium point a, if the lm curve shifts to the left
to lm2,
a.there will be official settlement deficit which pressures the domestic currency to
depreciate
b.there will be official settlement deficit which pressures the domestic currency to
appreciate
c.there will be official settlement surplus which pressures the domestic currency to
depreciate
d.there will be official settlement surplus which pressures the domestic currency to
appreciate
16) if the currency substitution approach is true, then a change to domestic money
supply that causes currency depreciation could mean:
a.further depreciation as individuals switch the substitute currency
b.central banks must intervene to maintain the fixed exchange rate of substitute
currencies
c.the decline in money supply will offset any depreciation
d.the increase in money supply will cause further depreciation
17) if prices in the u.k. are rising slower than prices in the u.s. then
a.the pound depreciates
b.the exchange rate stays the same
c.the dollar depreciates
d.the dollar appreciates
18) the following example supports which extension to the monetary approach to
exchange rates: the cost of holding a u.s. dollar rises relative to the cost of holding u.k.
pounds. the demand shifts away from dollars to pounds.
a.general equilibrium approach
b.trade balance approach
c.overshooting approach
d.currency substitution approach
19) when the ________ of two assets is _______, then the two variables rise together
and fall together.
a.covariance, negative
b.covariance, positive
c.variability, negative
d.variability, positive
20) which of the following best describes libor?
a.libor is the interest rate used in foreign exchange transactions among eurobanks
b.libor is the european central bank interest rate
c.libor is used by the federal reserves to set interest rates in the u.s
d.libor is a benchmark interest rate set by surveying a panel of top banks in london each
day, asking what rate they have to pay to borrow for various loan period
s
21) if a pair of sunglasses costs $80 in the u.s. and 80 pounds in the u.k. and the
exchange rate is 1.70 pound per dollar, then the pound is
a.correctly valued according to ppp
b.undervalued relative to ppp
c.overvalued relative to ppp
d.none of the above
22) if the sum of elasticities of demands for both imports and exports is less than 1,
then:
a.the marshall-lerner condition is met and trade balance improves
b.the marshall-lerner condition is met and trade balance decreases
c.the marshall-lerner condition is not met and trade balance improves
d.the marshall-lerner condition is not met and trade balance decreases
23) the mabp implies that the ________ equals to the foreign inflation rate plus the
growth rate of domestic output minus the change in domestic money creation.
a.national interest rate
b.holdings of gold
c.change in exchange rates
d.change in international reserves
24) in the bretton woods system, if the u.s. increases its money supply, foreign central
banks will have to intervene by ______ dollars and ______ foreign currencies to
maintain a fixed exchange rate.
a.selling; selling
b.selling: buying
c.buying; selling
d.buying; buying
25) from 2000 to 2010, the yen/dollar exchange rate fell from 240 yen/dollar to 102
yen/dollar, while the dollar/pound exchange rate fell from 2.22 dollar/pound to 1.62
dollar/pound. as a result,
a.the dollar appreciated relative to the yen, but depreciated relative to the pound
b.the dollar depreciated relative to the yen, but appreciated relative to the pound
c.the dollar appreciated relative to both the yen and the pound
d.the dollar depreciated relative to both the yen and the pound
26)
27) assume that the 3-month ius = 8% and the 3-month iuk = 4%, and the spot rate is
$1.50 per pound. using the approximate covered interest rate parity condition, the
3-month forward rate ($/pound) is:
a.1.440
b.1.515
c.1.527
d.1.560
28) according to the monetary approach to the balance of payments, which of the
following economic events would help a country to resolve its balance of trade deficit?
a.an increase in money supply
b.a decrease in money supply
c.a fall of foreign price level
d.a fall of domestic income
29) if the capital is perfectly immobile (due to restrictions), then the bp curve is:
a.horizontal
b.vertical
c.downward-sloping
d.upward-sloping
30) you purchase a futures contract for september delivery (september 15th) of 62,500
pounds on march 15th. the pound futures exchange rate is $1.65 per pound. the bank
has a margin requirement of 2 percent.
when the futures contract matures in september the spot rate is $1.67 per pound. how
much will you have to pay when the futures contract matures?
a.$103,125
b.$104,375
c.$105,187.5
d.$106,462.5