1) when the leakages are ________ the injections, then the value of income received
from producing goods and services will equal to total spending.
a.greater than
b.less than
c.equal to
d.the sum of
2) suppose that the one-year swiss interest rate is 1% and the one-year u.k. interest rate
is 11%. if the current spot rate is 0.75 swiss franc per pound, what must the one-year
forward rate (sfr/pound) be according to the approximate covered interest parity?
a.0.675
b.0.730
c.0.770
d.0.825
3) 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 expected
premium on the peso is:
a.-2.5%
b.12.5%
c.15%
d.22.75%
4) action by a central bank to offset the effect of a foreign exchange intervention, on the
domestic money supply, by using the open-market operations is known as:
a.monetary protectionism
b.sterilized intervention
c.currency creation
d.injecting money supply
5) suppose that the fed increases the u.s. money supply and the bretton woods system of
fixed exchange rates is still in place. then to maintain the fixed exchange rate, foreign
central banks intervene by:
a.raising the interest rate on dollars
b.buying dollars and selling its currency
c.raising the interest rate on its currency
d.selling dollars and buying its currency
6) refer to figure 2. in a flexible exchange rate regime, if an economy is experiencing
external disequilibrium at point b, then the domestic currency will:
a.depreciate, shifting the is curve to the right
b.depreciate, shifting the is curve to the left
c.appreciate, shifting the is curve to the right
d.appreciate, shifting the lm curve to the left
7) if the u.s. and the u.k. have identical term structures of interest rates, we would
expect:
a.the pound to appreciate against the dollar
b.the pound to depreciate against the dollar
c.no change in the exchange rate between two currencies
d.there is not enough information to forecast the direction of the exchange rate
8) ________ tends to hold better.
a.absolute ppp
b.relative ppp
c.covered interest rate parity
d.big mac index
9) a currency is at a ________ when its interest rate is ________ than the interest rate in
the other country.
a.forward flat, lower
b.forward discount, lower
c.forward flat, higher
d.forward premium, lower
10) small nations whose trade and financial relationships are mainly with a single
partner tend to utilize:
a.pegged exchange rates
b.free floating exchange rates
c.managed floating exchange rates
d.target bands – pegged exchange rates
11) in foreign exchange forecasting, what is a good forecast?
a.when the forecast encourages the firm to buy
b.when the forecast is close
c.when the forecast is high
d.when the forecast predicts the right hedging strategy