Fin 6605 MC Set A Model

For e e firms engage in global exploitation of their

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Unformatted text preview: national business. for e. e. Firms engage in global exploitation of their proprietary technologies while protecting them from third parties. This reflects the theory of XXX This Based on the theory that exchange rates are determined by current international flows between countries, iif the domestic real f between real interest is higher than foreign real interests, the interest domestic currency will: domestic 44. a. b. c. d. d. e. Appreciate against foreign currencies Depreciate against foreign currencies Be unaffected by real interest rate differences Fluctuate within wider bands Become inconvertible Assume that U.S. inflation rate is 6 percent Assume while U.K. inflation rate is 13 percent per year. If the exchange rate $/£ = 1.8950 at the beginning of the year, obtain the rate at the end of the year if PPP holds? PPP 45. 45. a. b. c. d. $1.7776 $1.7776 $2.0201 $2.0277 None of the above. 46. Which of the following currencies is 46 Which currently tied to gold? currently a. b. c. d. e. f. U.S. Dollar. Japanese Yen. The British Pound The SDR The Euro None of the above None 47. Assume that the consumer price index in the 47 United States rose from 100 to 108 and during the same period the Swiss consumer price index moved from 100 to 112. This occurred during a period when the exchange rate at the beginning of the period was $.20 per Swiss franc. At the end of this period, according to the relative PPP: a. The franc was worth less dollars. b. c. d. e. The franc was worth more dollars. The franc was worth the same in dollars. Real exchange rate remained constant. Nominal exchange rate remained constant 48. A theory that explains exchange rate changes based on relative differences in price levels in different countries is the: price a. b. b. c. d. e. International Fisher Equation International Purchasing Power Parity. Purchasing Fisher Equation. Fisher Interest Rate Parity. Inflation Theory 49. If the approximate Fisher Equation holds 49 If Fisher and real interest rates are equalized among countries by arbitrage, then: among a. Diifferences in domestic and foreign nominal fferences interest rates equal differences in exchange rates interest b. Differences in domestic and foreign inflation b. Differences rates equal differences in domestic and foreign rates nominal interest rates c. The International Fisher Equation holds c. d. The Purchasing power Parity holds d. e. The law of one price holds e. 50. Assume that you can purchase a Big Mac in the U.S. for $3.10 and a Big Mac in Hong Kong for HK $9.20 and that the actual exchange rate is HK $7.73 per U.S. dollar. Which of the following HK statements is true according to absolute PPP? according a. b. b. c. c. d. The Hong Kong dollar is undervalued The The Hong Kong dollar is overvalued The Hong Kong dollar is correctly valued You can buy a Big Mac for more U.S. dollars in Hong Kong than in the U.S. e. Purchasing Power Parity holds true between HK$ and US$. and 51. Assume that a Big Mac costs $3.10 in the U.S....
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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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