1) which of the follow are reasons for offshore banking?
i.avoid high costs of domestic regulation
ii.avoid government mandated credit allocations
iii.avoid taxes on capital flows
iv.avoid attempts to seize foreign deposits
a.ii only
b.i and iii
c.i,ii, and iii
d.i, ii, iii, and iv
2) the bretton woods agreement required that each country, other than the u.s., fix the
value of its currency in terms of a(n):
a.ounce of gold
b.common currency
c.commodity basket
d.anchor currency
3) if the absolute ppp suggest that the yen to u.s. dollar is 84.50 and the actual exchange
rate in new york is 85.50 (yen/$), then:
a.the japanese yen is overvalued
b.the u.s. dollar is overvalued
c.the u.s. dollar is undervalued
d.exchange rates and absolute ppp are unrelated
4) suppose the bank of england is using a managed floating exchange regime. in order
to keep money supply constant the bank of england exchanges domestic bonds for
foreign bonds to slow any appreciation of the pound while keeping the british money
supply unchanged. this process is known as:
a.sterilized intervention
b.the monetary approach
c.exchange rate intervention
d.balancing official settlements
5) bank syndicates are used to
a.create shell branches for u.s. banks
b.approve new eurobanks
c.conduct offshore banking in domestic offices
d.make large eurocurrency loans
6) if absolute ppp holds, then the real exchange rate must be equal to:
a.a constant
b.a positive number
c.one
d.all of the above
7) when a multinational firm calculates a project for a foreign subsidiary with ________
net value, then the project should probably be ________.
a.zero, delayed
b.positive, sold
c.negative, accepted
d.positive, accepted
8) which of the following is correct about the news approach to exchange rate
determination?
a.government must control the news to prevent excessive exchange rate volatilities
b.news reduces the information costs and thus stabilizes the exchange rate movements
c.news make people act irrationally
d.news affects peoples expectations about the future, causing high swings in exchange
rates
9) use the portfolio-balance approach to answer this question. other things remaining
constant, if the supply of foreign bonds increases, what would happen to the domestic
currency?
a.the domestic currency would appreciate
b.the domestic currency would depreciate
c.the domestic currency would not change
d.the domestic currency would sharply depreciate and then appreciate later
10) one key implication of the mabr is that expansionary monetary policy:
a.always increases output
b.always decreases output
c.alters output in the short run, but not in the long run
d.does not alter output in the short run or the long run
11) if the absolute ppp suggest that the dollar to pound should be 1.88 and the actual
exchange rate in london is 2.50 ($/pound), then:
a.the british pound is overvalued
b.the u.s. dollar is overvalued
c.the british pound is undervalued
d.exchange rates and absolute ppp are unrelated
12) policy in the imf is determined by voting, and votes are allocated by:
a.population
b.annual gdp
c.gdp per capita
d.financial contributions
13) in international finance, covered interest rate parity refers to:
a.the forward rate being in excess of the spot rate
b.the advantage of one currency over another
c.the equivalence of the interest differential between two currencies to the forward
premium or discount
d.the difference of the two comparable investments in two different countries
14) in foreign exchange trading, arbitrage activity could lead to ________.
a.risky trading transactions
b.either gain or loss on the trade
c.only gain on the trade
d.(a) and (b) are correct
15) suppose that the 1-year forward rate of dollar per peso is $11.25, the current spot
rate ($/peso) is $10.00, and the expected future spot rate ($/peso) is $11.50. the risk
premium on the peso is:
a.-2.5%
b.12.5%
c.15%
d.22.75%