2300 Final Review Answers - AEM 2300 Answers for TA Review...

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AEM 2300 Answers for TA Review Section, May 10, 2010 1) False. The total balance of payments must be in balance. Sub-accounts, such as the current or capital account, may run deficits or surpluses. 2) True. Assume your call option allows you to buy 100 Yen for $1. If the Yen appreciated, you might be able to buy 80 Yen for $1. Therefore, you get more Yen by using your option. 3) False. Covered interest arbitrage protects you against fluctuations in the exchange rate by arranging for a forward contract the same day the security matures. (Though some fluctuations may be caused by variations in the interest rate.) 4) False. There has been a move towards floating exchange rates, away from pegged exchange rates. 5) False. Monetary policy must be used to maintain a fixed exchange rate, and cannot be used to counteract recessions. 6) True. It costs more in USD in France than it does in the US. 7) False. These, along with other macroeconomic variables are good for long-term analysis. 8) False.
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2300 Final Review Answers - AEM 2300 Answers for TA Review...

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