CH22AQZV7 - Chapter 22 Quiz A Student Name 1 Student ID A...

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Chapter 22 Quiz A Student Name _________________________ Student ID ____________ ________ 1. A security issued in the U.S. representing shares of a foreign stock and allowing that stock to be traded in the U.S. is called a(n): a. Eurobond. b. foreign bond. c. gilt. d. American Depository Receipt. ________ 2. The price in dollars of a foreign currency is referred to as a(n): a. European quote. b. cross-rate. c. direct quote. d. indirect quote. ________ 3. The notion that a commodity costs the same regardless of where it is purchased or what currency is used to pay for the purchase is known as: a. the international Fisher effect. b. the home currency approach. c. relative purchasing power parity. d. absolute purchasing power parity. ________ 4. The condition that states that the forward rate is equal to the expected future spot rate is known as the _____ condition. a. unbiased forward rates b. uncovered interest parity c. relative purchasing power parity d. forward arbitrage ________ 5. The U.S. dollar ($) equivalent of the British pound (£) is 1.83. The U.S. dollar equivalent of the Canadian dollar (C$) is .75. Which one of the following statements is correct given this information? a. $500 is worth about £915. b. $250 is worth about C$188. c. £250 is worth about $137. d. C$300 is worth about $225. ________ 6. You can exchange $1 (US dollar) for either £.55 (British pound) or C$1.35 (Canadian dollar). Given this, which one of the following correctly defines the cross-rate between the British pound and the Canadian dollar? a. C$1 = £.74 b. C$1 = £2.45 c. £1 = C$2.45 d. £1 = C$.74 ________ 7. The current spot rate between the U.K. and the U.S. is £.55 = $1.00. The expected inflation rate in the U.S. is 3 percent while the expected inflation rate in the U.K. is 2 percent. What is the expected exchange rate next year assuming that relative purchasing power parity exists? a. £.5391 = $1 b. £.5445 = $1 c. £.5555 = $1 d. £.5611 = $1 ________ 8. The current spot rate on the Canadian dollar is C$1.40 per $1. U.S. Treasury bills are yielding 4 percent. The rate on a risk-free Canadian asset is 3 percent. What is the 2-year forward rate if interest rate parity exists? a. C$1.37 = $1 b. C$1.42 = $1 c. C$1.44 = $1 d. C$1.49 = $1 ________ 9. The expected inflation rate in the U.S. is 3 percent and the U.S. Treasury bill is yielding 4 percent. The expected inflation rate in India is 10 percent. The spot rate between the Indian rupee and the U.S. dollar is Rs46 per $1. What rate of return should you expect to earn on a risk-free security in India?
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This note was uploaded on 05/29/2010 for the course FIN 325 taught by Professor Staff during the Spring '08 term at San Diego State.

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CH22AQZV7 - Chapter 22 Quiz A Student Name 1 Student ID A...

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