Ch_21_HW_C_Solutions

Ch_21_HW_C_Solutions - Ch21 C HW Solutions 1. International...

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1 Ch21 C HW Solutions 1. International bonds issued in a single country and denominated in that country's currency are called: A. Treasury bonds. B. Eurobonds. C. gilts. D. Brady bonds. E. foreign bonds. Refer to section 21.1 2. The price of one Euro expressed in U.S. dollars is referred to as a(n): A. ADR rate. B. cross inflation rate. C. depository rate. D. exchange rate. E. foreign interest rate. Refer to section 21.2 3. Assume that an item costs $100 in the U.S. and the exchange rate between the U.S. and Canada is: $1 = C$1.27. Which one of the following concepts supports the idea that the item that sells for $100 in the U.S. is currently selling in Canada for $127? A. unbiased forward rates condition B. uncovered interest rate parity C. international Fisher effect D. purchasing power parity E. interest rate parity Refer to section 21.3 4. Which one of the following is the risk that a firm faces when it opens a facility in a foreign country, given that the exchange rate between the firm's home country and this foreign country fluctuates over time? A. international risk B. diversifiable risk C. purchasing power risk D. exchange rate risk E. political risk Refer to section 21.6
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2 5. Which one of the following statements is correct concerning the foreign exchange market? A. The trading floor of the foreign exchange market is located in London, England. B. The foreign exchange market is the world's second largest financial market. C. The four primary currencies that are traded in the foreign exchange market are the U.S. dollar, the British pound, the French franc, and the euro. D. Importers, exporters, and speculators are key players in the foreign exchange market. E. The U.S. created a communications network called SWIFT to facilitate currency trading. Refer to section 21.2 6. Which of the following variables used in the covered interest arbitrage formula are correctly defined? I. R FC : Foreign country nominal risk-free interest rate II. R US : U.S. real risk-free interest rate III. F 1 : 360-day forward rate IV. S 0 : Current spot rate expressed in units of foreign currency per one U.S. dollar A. I and II only
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Ch_21_HW_C_Solutions - Ch21 C HW Solutions 1. International...

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