Fin 6605 MC Set A Model

# Smaller will be the forward premium of the c foreign

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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%...
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## 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.

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