Unformatted text preview: the
b.
foreign currency.
foreign
c. Smaller will be the forward premium of the
c.
foreign currency.
foreign
d. Smaller will be the forward discount of the
d.
foreign currency.
foreign 28. Assume that interest rate parity (IRP)
holds. The Mexican interest rate is 5%, and
holds.
the U.S. interest rate is 8%. Subsequently,
the U.S. interest rate decreases to 7%.
If IRP is to continue to hold, then the peso’s
forward __ will__
forward
a. Premium; increase
a.
b. Discount; decrease
b.
c. Discount; increase
c.
d. Premium; decrease
Premium; 29. According to the “law of one price,”
29.
a. The price of an identical product should be
equal across markets when measured in a
common currency.
common
b. Interest rates across markets should be equal
over the same period.
c. Inflation rates across markets should be equal
over the same period.
over
d. The forward rate should be an unbiased
predictor of future spot rate. 30. Assume U.S. and UK. investors require a real
rate of return of 3%. Assume nominal U.S.
interest rate is 6% and the nominal U.K. rate is
4%. According to the International Fisher
Equation, the pound will ___ by about ____.
Equation,
a. Appreciate; 3%
a.
b. Appreciate; 1%
b.
c. Depreciate; 3%
c.
d. Depreciate; 2%
d.
e. Appreciate; 2%
Appreciate; 31. If PPP holds, then the following will be true
except:
a. Nominal exchange rate changes in proportion
to inflation differential
b. Nominal exchange rate remains constant
c. Real exchange rate changes in proportion to
real interest differential
d. Relative competitive positions remain constant
e. Both b and c. 32. The cornerstone of all interest rates in the
US economy is the:
US
a.
a.
b.
b.
c.
c.
d.
e.
e.
f.
f.
g.
g.
h.
h. Mortgage rate
Prime rate
Discount rate
Federal funds rate
Federal
LIBOR
Bond rate
Euro currency rate
CD rate 33. The world’s dominant foreign exchange
market is:
market
a.
a.
b.
c.
c.
d.
d.
e.
e.
f.
f.
g.
g. Japan
United Kingdom
United
United States
Singapore
Germany
Switzerland
Hong Kong 34. The top three dominant foreign exchange
markets in the world are:
markets
a.
a.
b.
b.
c.
c.
d.
e.
f.
f. Japan, Singapore, and Hong Kong
United Kingdom, United States, and Germany
United States, Japan, and Switzerland
United States, Japan, and United Kingdom
United
United States Japan, and Germany,
Switzerland, Germany, and Hong Kong 35. If the forward rate is expected to be an
unbiased estimate of future spot rate and
interest rate parity holds, then:
interest
a.
a.
b.
c.
c.
d.
d.
e.
e. Covered Interest Arbitrage holds
International Fisher Equation holds.
International
Purchasing Power Parity holds.
Absolute forecast error would be zero
Triangular arbitrage is not feasible 36. The cross exchange rate quoted by Bank X for
the Brazilian real (BRR) is 98 Japanese yen (¥).
Bank X also quoted a price for the yen of $0.009,
and a price for the real of $0.88. You had
$150,000 to conduct triangular arbitrage.
What would be your return from conducting
triangular arbitrage?
triangular
a.
b.
c.
d.
e. 0.23%
0.23%
7.26%...
View
Full
Document
This note was uploaded on 12/17/2012 for the course FIN 3604 taught by Professor Zhang during the Spring '12 term at University of San Francisco.
 Spring '12
 Zhang
 Exchange Rate

Click to edit the document details