Bus 426 - exam 3

Bus 426 - exam 3 - A Final Exam BUS 426 May 2006 Name: _...

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A BUS 426, Spring 2006, Exam 1 Final Exam Name: ___________________________________________________ BUS 426 May 2006 I. Record on the scantron form the letter for the one best answer for each of the following questions. 1. Which of the following would likely cause a decrease in the value of the dollar? a) U.S. government sells foreign exchange reserves. b) Foreign companies increase intellectual property payments to U.S. companies. c) U.S. economy expands due to increases in consumer demand. d) U.S. interest rates rise relative to rates abroad. e) U.S. tourists shift their vacation travel from foreign to domestic destinations. 2. Which of the following would happen to the foreign exchange market for the dollar if foreign tourists began visiting California and Florida in much greater numbers? a) The supply of dollars in the foreign exchange market would shift left and the dollar would fall. b) The demand for dollars in the foreign exchange market would shift left and the dollar would rise. c) The supply of dollars in the foreign exchange market would shift left and the dollar would rise. d) The supply of dollars in the foreign exchange market would shift right and the dollar would fall. e) The demand for dollars in the foreign exchange market would shift right and the dollar would rise. 3. Which of the following is true of a currency board? a) It always leads to dollarization of an economy. b) It is used to set interest rates that respond to changes in inflation. c) It is a fixed exchange rate that is altered frequently to fit new conditions. d) It runs a floating rate with “leaning against the wind”. e) It pegs one country’s currency strongly to another’s. 4. Country Q has a balanced government budget (tax revenues equal government expenditure). Its private savings substantially exceed its private domestic investment. Its reserve flows are essentially zero. Which of the following is most likely to be true? a) Q is running a zero balance on its capital and current accounts. b) Q is running a deficit on current account and a surplus on capital account. c) Q is running a surplus on current account and a deficit on capital account. d) Q is running a deficit on current account, and a zero balance on capital account. e) Q is running a surplus on capital account and a zero balance on current account. 5. The spot and 6-month forward exchange rates with Switzerland are $0.8059/franc and $0.8213/franc. If the interest rate in Switzerland is 5.65% per annum, what is the U.S. interest rate implied by covered interest parity? a) 7.67% b) 9.58% c) 8.19% d) 10.60% e) 6.65% 6. If the nominal exchange rate with Mexico now is 11.0852 pesos/$, what will it be in 2 years if PPP holds and if inflation rates over the next 2 years are 3% in the U.S. and 7% in Mexico? a)
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Bus 426 - exam 3 - A Final Exam BUS 426 May 2006 Name: _...

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