Practice Exam II - S11

Practice Exam II - S11 - Goizueta Business School Emory...

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Goizueta Business School International Finance Emory University Spring 2011 1 Practice Exam Problems A. TRUE OR FALSE 1. True or false. The law of one price is often violated. 2. True or false. Suppose that on January 2, 2001, the € traded at $1.07, and over the next year, inflation rates were 3% in Europe and 4% in the U.S. If the € traded at $1.04 on January 2, 2002, then, according to PPP, the € was overvalued on January 2, 2002 relative to its January 2, 2001 value. 3. True or false. PPP holds up well in the long run, but not so well over shorter time periods. 4. True or false. Suppose a Big Mac sells for $2.50 in the U.S. and 400 ¥ in Japan, and the actual spot exchange rate is 125 ¥/$. Based on the law of one price, the actual spot exchange rate undervalues ¥. 5. True or false. If interest rate parity holds, the maturity value of a money market hedge is identical to the proceeds from forward hedging. 6.
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Practice Exam II - S11 - Goizueta Business School Emory...

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