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d. €/£ = 1.2446-57
€/£ = .8793-.8819
£/€ = .0808‑12
£/€ = .0976‑87 21. The following are true about basic
differences between forward and futures
a. Forward contracts are individually tailored while
futures contracts are standardized
b. Forward contracts are negotiated with banks
whereas futures contracts are bought and sold on
c. Forward contracts have no daily limits on price
fluctuations whereas futures contracts have a
daily limit on price fluctuations
d. Forward contracts entail obligations whereas
futures contracts do not 22. Suppose that a firm located in Belgium can
borrow dollars at 8% or Belgian francs at 14%.
If the Belgian franc is expected to depreciate
from BF/$ = 58 at the beginning of the year to
BF/$ = 61 at the end of the year, then the
expected effective cost of the dollar loan is:
Note: At what exchange rate would the dollar cost of
borrowing be equal to the frank cost?
borrowing 23. Intel (USA) has the choice of borrowing dollars
at 9.5% or yen at 7% for one year. The current
exchange rate is ¥152 = $1. At what end‑of‑year
exchange rate would the yen costs of these two
loans be equal?
d. ¥/$ = 155.55
¥/$ = 149.2
¥/$ = 153.6
¥/$ = 148.5
¥/$ 24. The statement, the forward rate is an unbiased
predictor of the future spot rate, means:
a. The forward rate is always equal to the future spot
b. The forward is never equal to the future spot at
c. The exchange rate is random.
d. The forward rate is equally likely to overstate or
understate the future spot.
e. The forward premium (discount) is an unbiased
predictor of the expected change in exchange rates
f. Both d and e
f. Both 25. If the central bank sets a fixed exchange
rate that undervalues domestic currency,
a. The Central Bank will lose reserves.
b. There will be an excess supply of domestic
c. The country will run a BOP deficit.
d. The country will run a BOP surplus.
e. Both (a) and (c) 26. If the values of major currencies were fixed to
the dollar and the dollar were tied to gold (as in
the Bretton Woods System) then the following
would not be true:
a. There could be no inflation or deflation in the US
b. There could be no inflation or deflation in other
c. The US would need a large stock of gold and
dollars to maintain the system.
d. The US and other participating countries would
have a constant inflation or deflation over time
e. Both (a) and (c). 27. Based on interest rate parity, the larger the
degree by which the foreign interest rate
exceeds domestic interest rate, the:
a. Larger will be the forward discount of the
b. Larger will be the forward premium of...
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- Spring '12
- Exchange Rate, Foreign exchange market, United States dollar