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43. If the spot exchange rate between euros and dollars is €1.5/$ before the dollar
depreciates by 10%, how many dollars will it take after the depreciation has occurred to pay an
invoice of €500?
44. The theory that goods in a foreign country should be priced approximately equal after
currency translation to goods in a host country is referred to as the law of:
45. If prices in the United States rise less rapidly than in Canada, which one of the following
would be expected according to purchasing power parity?
46. If exchange rates adjust to reflect inflation differentials across countries, then:
47. Predict the expected spot exchange rate between the Japanese yen and U.S. dollar, given
that inflation in Japan, at 8%, is 4% higher than in the United States and that the current spot rate
is ¥107/$1.
48. The ratio of expected spot rate to current spot rate for $/£ is 1.02 and the inflation rate in
the United States is 5%. What is the approximate inflation rate in the United Kingdom?
49. Which one of the following would you expect to be nearly equal across countries?
50. The international Fisher effect predicts that differences in nominal interest rates between
countries reflect differences in:
51. What do you expect to happen to prices in Japan, given nominal interest rates of 10% in
the United States and 6% in Japan, and expected U.S. inflation of 6%?
52. How much would you expect to receive for a nominal interest rate in Great Britain if funds
can be invested in the United States at a rate of 7%, when inflation is expected to be 4% in the
United States and 8% in Great Britain?
53. How much wealthier would you be 1 year from now if you exchange $100,000 into Hong
Kong dollars today at an indirect rate of HK$7.8/$, earn 7% on your Hong Kong investment, and
exchange back at a rate of HK$8.0/$, as compared to investing in the United States at 4.0%?
54. If the difference between forward and spot exchange rates is positive, interest rate parity
would predict that:
55. Which one of the following is advised when evaluating a capital project in a foreign
country if you are concerned about political risk?
56. Current 1-year interest rates are 4% and 8% in the United States and Spain, respectively.
The anticipated inflation in the United States is 2%. If the international Fisher effect holds, what
is the expected inflation rate in Spain?
57. If you buy yen forward when the yen is selling at a forward premium, you will get:
58. According to the expectations theory of exchange rates, what change is expected in the
future spot exchange rate if the current spot rate is 8% lower than the forward exchange rate?
59. If interest rates are higher in Italy than in the United States, you should expect the euro
to:
60. You are importing TV sets worth ¥10 million from a Japanese manufacturer, and this
amount is payable after 6 months. You can hedge your exchange risk by:
61. Buckingham Inc., a British corporation, owes Yank Inc., a U.S. corporation, $1 million due
in 2 months. How can Buckingham hedge the exchange risk?
62. A firm owes a large future payment that must be made in a foreign currency and wants to
hedge the associated exchange rate risk. Which one of the following identifies the cost of such a
hedge?
63. An indirect exchange rate can be converted to a direct exchange rate by:
64. Yesterday the spot exchange rate of yen-to-dollar was 105. What is today's spot
exchange rate if the yen has appreciated 10% against the dollar today?
65. Which one of the following is correct when foreign currency is contracted in the forward
market?
66. Which one of these is an example of operational hedging?
67. This morning, you purchased 125,000 yen ahead 6 months at a price of 130 yen per dollar.
The spot rate today is 128 yen per dollar. In six months, how many dollars must you pay to
acquire the 125,000 yen?
68. Which of the following is correct when contracting ahead in the forward exchange
market?
69. Consider the following spot exchange rates: $1.60/£, ¥105/$, €1.6/$, and L2,020/$.
Which one of the following prices for 1 troy ounce of gold seems to violate the law of one price if
gold sells for $290 per troy ounce in the United States?
70. Assume you can exchange $1 for either C$1.03 or €0.74. How many Canadian dollars can
be acquired with one euro?
71. According to the theory of purchasing power parity, exchange rates will adjust so that
differences in:
72. What is the expected German inflation rate if 3% inflation is expected in the United
States, the spot exchange rate is €1.5/$ and the expected spot rate is €1.6/$?
73. What would you expect to occur if the rate of expected inflation in the United States is
considerably lower than the expected inflation in Germany?
74. What would you expect to be the relationship between real rates of interest in Japan and
the United States if inflation is expected to be 3% in Japan and 6% in the United States?
