If the annual inflation rate is 55 percent in the

  • Ryerson University
  • FIN 621
  • Test Prep
  • Pakistani
  • 61
  • 90% (151) 136 out of 151 people found this document helpful

This preview shows page 54 - 57 out of 61 pages.

70. If the annual inflation rate is 5.5 percent in the United States and 4 percent in the U.K., and the dollar depreciated against the pound by 3 percent, then the real exchange rate, assuming that PPP initially held, is: A. 0.07 B. 0.9849 C. -0.0198 D. 4.5 Equation 6.14: 71. If the annual inflation rate is 2.5 percent in the United States and 4 percent in the U.K., and the dollar appreciated against the pound by 1.5 percent, then the real exchange rate, assuming that PPP initially held, is: A. parity B. 0.9710 C. -0.0198 D. 4.5 Equation 6.14: 72. In view of the fact that PPP is the manifestation of the law of one price applied to a standard commodity basket, A. It will hold only if the prices of the constituent commodities are equalized across countries in a given currency B. It will hold only if the composition of the consumption basket is the same across countries C. Both a) and b) D. None of the above 6-54
Chapter 06 International Parity Relationships and Forecasting Foreign Exchange 73. Some commodities never enter into international trade. Examples include: A. Nontradables B. Haircuts C. Housing D. All of the above 74. Generally unfavorable evidence on PPP suggests that A. Substantial barriers to international commodity arbitrage exist B. Tariffs and quotas imposed on international trade can explain at least some of the evidence C. Shipping costs can make it difficult to directly compare commodity prices D. All of the above 75. The price of a McDonald's Big Mac sandwich A. Is about the same in the 120 countries that McDonalds does business in B. Varies considerably across the world in dollar terms C. Supports PPP D. None of the above One explanation is that a Big Mac will cost more in Hawaii than Iowa because you first have to buy the cow an airplane ticket. 76. The Fisher effect can be written for the United States as: A. i $ = $ + E(Л $ ) + $ E(Л $ ) B. $ = i $ + E(Л $ ) +i $ E(Л $ ) C. D. 6-55
Chapter 06 International Parity Relationships and Forecasting Foreign Exchange 77. Forward parity states that A. Any forward premium or discount is equal to the expected change in the exchange rate B. Any forward premium or discount is equal to the actual change in the exchange rate C. The nominal interest rate differential reflects the expected change in the exchange rate D. An increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country 78. The International Fisher Effect suggests that A. Any forward premium or discount is equal to the expected change in the exchange rate B. Any forward premium or discount is equal to the actual change in the exchange rate C. The nominal interest rate differential reflects the expected change in the exchange rate D. An increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture