PS2 354 - METU / FEAS / Department of Economics Econ 354:...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 METU / FEAS / Department of Economics Econ 354: Introduction to International Economics II / Spring 2010 Student assistants: Merve Mavu ş ğ lu ([email protected]) Course assistant: Seda Ekmen ([email protected]) Instructor: Emre Özçelik ([email protected]) Problem Set # 2 – Chapter 20 Part A. Multiple Choice Questions 1. Avoiding potential losses due to expected exchange rate changes is called _________ , whereas making a profit as a result of exchange rate changes is known as ________. a. speculation; hedging b. hedging; speculation c. arbitrage; hedging d. speculation; arbitrage 2. Under a flexible exchanges rates regime, suppose that Turkish citizens decrease their imports from Greece. At the same time, Greek citizens increase their purchases of stocks and bonds in Turkey. The first action (i.e., Turkish imports) will lead to ______ of Turkish Lira (TL) against Euro (€). The second action will _____ of TL against €. a. an appreciation; lead to a depreciation b. an appreciation; also lead to an appreciation c. a depreciation; also lead to a depreciation d. a depreciation; lead to an appreciation 3. Assume that in 2009, the equilibrium exchange rate between TL and $ was 1.60 TL/$. Turkish prices doubled in 2009, while U.S. prices rose by 60 %. Then the (relative) purchasing power parity theory would say that the equilibrium exchange rate in 2009 was: a. 0.80 TL/$ b. 1.25 TL/$ c. 1.28 TL/$ d. 2.00 TL/$ 4. In which of the following relationships between the expected future spot rate (E(e)) of a foreign currency and the current forward rate (e fwd ) of a foreign currency would a speculator have an incentive to buy foreign currency in the forward market? a. E(e) < e fwd b. E(e) > e fwd c. E(e) = e fwd d. None of the above. 5. Assume that exchange rate is stated in terms of domestic currency (TL) per unit of foreign currency (Yen). If the forward rate is 1.05 TL/Yen while spot rate is 1.10 TL/Yen, then the Yen is ______. a. at discount b. at premium c. in depreciation d. in appreciation
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 6. Suppose that the 3-months interest rate in London is 3 percent, the 3-months interest rate in Tokyo is 4 percent and that the spot rate is £2.00/Yen and the 3-months forward rate is £2.20/Yen. In this situation, there is an incentive for short-term interest arbitrage funds to flow a. from London to Tokyo. b.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/26/2010 for the course ECON 354 taught by Professor Emre during the Spring '10 term at Middle East Technical University.

Page1 / 5

PS2 354 - METU / FEAS / Department of Economics Econ 354:...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online