Question 1

Academic studies tend to discredit the validity of technical analysis.Which of the following is true?

Accepted Answer

A) This can be viewed as support technical analysis. 
B) It can be rational for individual traders to use technical analysis-if enough traders use technical analysis the predictions based on it can become self-fulfilling to some extent,at least in the short-run. 
C) The statement can be explained by the difficulty professors may have in differentiating between technical analysis and fundamental analysis. 
D) none of the options 
A) This can be viewed as support technical analysis. 
B) It can be rational for individual traders to use technical analysis-if enough traders use technical analysis the predictions based on it can become self-fulfilling to some extent,at least in the short-run. 
C) The statement can be explained by the difficulty professors may have in differentiating between technical analysis and fundamental analysis. 
D) none of the options

Question 2

Assume that you are a retail customer.Use the information below to answer the following question.
 $$\begin{array} { r c c c c c } 
& \text { Bid }& \text { Ask }& \text { Borrowing } &\text { Lending }\
S _ { 0 } ( \$ / € ) & \$ 1.40 = € 1.00 & \$ 1.43 = € 1.00  &\text { i\$ } 4.20 \% \mathrm { APR } & 4.10 \% \mathrm { APR } \
F _ { 360 } ( \$ / \epsilon ) & \$ 1.44= € 1.00 & \$ 1.49= € 1.00 & \text { i€ } 3.65\% \mathrm { APR } & 3.50 \% \mathrm { APR }
\end{array}$$ If you had borrowed $1,000,000 and traded for euro at the spot rate,how many € do you receive?

Accepted Answer

The answer of Assume that you are a retail customer.Use...

Question 3

Interest Rate Parity (IRP)is best defined as

Accepted Answer

A) occurring when a government brings its domestic interest rate in line with other major financial markets. 
B) occurring when the central bank of a country brings its domestic interest rate in line with its major trading partners. 
C) an arbitrage condition that must hold when international financial markets are in equilibrium. 
D) none of the options 
A) occurring when a government brings its domestic interest rate in line with other major financial markets. 
B) occurring when the central bank of a country brings its domestic interest rate in line with its major trading partners. 
C) an arbitrage condition that must hold when international financial markets are in equilibrium. 
D) none of the options

Question 4

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 ________.

Accepted Answer

A) parity 
B) 0.9710 
C) −0.0198 
D) 4.5 
A) parity 
B) 0.9710 
C) −0.0198 
D) 4.5

Question 5

Use the information below to answer the following question.
 $\begin{array}{rccccc} 
&{\text { Exchange Rate }} & \text { Interest Rate } & \text { APR } \
 S_{0}(\$ / €) & \$ 1.45= €1.00 &i \$  & 4\% \
F_{360}(\$ / €) & \$ 1.48= € 1.00& i € & 3\%
\end{array}$ If you borrowed $1,000,000 for one year,how much money would you owe at maturity?

Accepted Answer

$1,000,000

Question 6

Forward parity states that

Accepted Answer

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. 
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.

Question 7

A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year.The one-year interest rate in the U.S.is i$ = 2% and in the euro zone the one-year interest rate is i€ = 6%.The one-year forward exchange rate is $1.20 = €1.00; what must the spot rate be to eliminate arbitrage opportunities?

Accepted Answer

A) $1.2471 = €1.00 
B) $1.20 = €1.00 
C) $1.1547 = €1.00 
D) none of the options 
A) $1.2471 = €1.00 
B) $1.20 = €1.00 
C) $1.1547 = €1.00 
D) none of the options

Question 8

Researchers have found that the fundamental approach to exchange rate forecasting

Accepted Answer

A) outperforms the efficient market approach. 
B) fails to more accurately forecast exchange rates than either the random walk model or the forward rate model. 
C) fails to more accurately forecast exchange rates than the random walk model but is better than the forward rate model. 
D) outperforms the random walk model,but fails to more accurately forecast exchange rates than the forward rate model. 
A) outperforms the efficient market approach. 
B) fails to more accurately forecast exchange rates than either the random walk model or the forward rate model. 
C) fails to more accurately forecast exchange rates than the random walk model but is better than the forward rate model. 
D) outperforms the random walk model,but fails to more accurately forecast exchange rates than the forward rate model.

Question 9

Assume that you are a retail customer (i.e.,you buy at the ask and sell at the bid).Use the information below to answer the following question.
 $\begin{array}{rccccc} 
&{\text { Bid}} & \text { ASK} & \text { APR } \
 S_{0}(\$ / €) & \$ 1.42= €1.00 & \$1.45= €1.00  &i \$  4\% \
F_{360}(\$ / €) & \$ 1.48= € 1.00&  \$1.50= €1.00 & i €3\%
\end{array}$

If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

Accepted Answer

€1,000,000

Question 10

The International Fisher Effect suggests that

Accepted Answer

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. 
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.

Question 11

Assume that you are a retail customer.Use the information below to answer the following question.
 $$\begin{array} { r c c c c c } 
& \text { Bid }& \text { Ask }& \text { Borrowing } &\text { Lending }\
S _ { 0 } ( \$ / € ) & \$ 1.40 = € 1.00 & \$ 1.43 = € 1.00  &\text { i\$ } 4.20 \% \mathrm { APR } & 4.10 \% \mathrm { APR } \
F _ { 360 } ( \$ / \epsilon ) & \$ 1.44= € 1.00 & \$ 1.49= € 1.00 & \text { i€ } 3.65\% \mathrm { APR } & 3.50 \% \mathrm { APR }
\end{array}$$ If you borrowed $1,000,000 for one year,how much money would you owe at maturity?

Accepted Answer

$1,000,000

Question 12

Suppose that you are the treasurer of IBM with an extra U.S.$1,000,000 to invest for six months.You are considering the purchase of U.S.T-bills that yield 1.810% (that's a six month rate,not an annual rate)and have a maturity of 26 weeks.The spot exchange rate is $1.00 = ¥100,and the six month forward rate is $1.00 = ¥110.What must the interest rate in Japan (on an investment of comparable risk)be before you are willing to consider investing there for six months?

Accepted Answer

A) 1.991 percent 
B) 1.12 percent 
C) 7.45 percent 
D) −7.45 percent 
A) 1.991 percent 
B) 1.12 percent 
C) 7.45 percent 
D) −7.45 percent

Question 13

Assume that you are a retail customer.Use the information below to answer the following question.
 $$\begin{array} { r c c c c c } 
& \text { Bid }& \text { Ask }& \text { Borrowing } &\text { Lending }\
S _ { 0 } ( \$ / € ) & \$ 1.40 = € 1.00 & \$ 1.43 = € 1.00  &\text { i\$ } 4.20 \% \mathrm { APR } & 4.10 \% \mathrm { APR } \
F _ { 360 } ( \$ / \epsilon ) & \$ 1.44= € 1.00 & \$ 1.49= € 1.00 & \text { i€ } 3.65\% \mathrm { APR } & 3.50 \% \mathrm { APR }
\end{array}$$ If you had €1,000,000 and traded it for USD at the spot rate,how many USD will you get?

Accepted Answer

The answer of Assume that you are a retail customer.Use...

Question 14

Assume that you are a retail customer.Use the information below to answer the following question.
 $$\begin{array} { r c c c c c } 
& \text { Bid }& \text { Ask }& \text { Borrowing } &\text { Lending }\
S _ { 0 } ( \$ / € ) & \$ 1.42 = € 1.00 & \$ 1.45 = € 1.00  &\text { i\$ } 4.25 \% \mathrm { APR } & 4 \% \mathrm { APR } \
F _ { 360 } ( \$ / \epsilon ) & \$ 1.48 = € 1.00 & \$ 1.50 = € 1.00 & \text { i€ } 3.10 \% \mathrm { APR } & 3 \% \mathrm { APR }
\end{array}$$ If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

Accepted Answer

€1,000,000

Question 15

Suppose that the one-year interest rate is 3.0 percent in Italy,the spot exchange rate is $1.20/€,and the one-year forward exchange rate is $1.18/€.What must the one-year interest rate be in the United States?

Accepted Answer

A) 1.2833% 
B) 1.0128% 
C) 4.75% 
D) none of the options 
A) 1.2833% 
B) 1.0128% 
C) 4.75% 
D) none of the options

Question 16

Assume that you are a retail customer.Use the information below to answer the following question.
 $$\begin{array} { r c c c c c } 
& \text { Bid }& \text { Ask }& \text { Borrowing } &\text { Lending }\
S _ { 0 } ( \$ / € ) & \$ 1.42 = € 1.00 & \$ 1.45 = € 1.00  &\text { i\$ } 4.25 \% \mathrm { APR } & 4 \% \mathrm { APR } \
F _ { 360 } ( \$ / \epsilon ) & \$ 1.48 = € 1.00 & \$ 1.50 = € 1.00 & \text { i€ } 3.10 \% \mathrm { APR } & 3 \% \mathrm { APR }
\end{array}$$ If you had €1,000,000 and traded it for USD at the spot rate,how many USD will you get?

Accepted Answer

The answer of Assume that you are a retail customer.Use...

Question 17

According to the technical approach,what matters in exchange rate determination

Accepted Answer

A) is the past behavior of exchange rates. 
B) is the velocity of money. 
C) is the future behavior of exchange rates. 
D) is the beta. 
A) is the past behavior of exchange rates. 
B) is the velocity of money. 
C) is the future behavior of exchange rates. 
D) is the beta.

Question 18

Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany,and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate,is $1.16/€.Assume that an arbitrageur can borrow up to $1,000,000.

Accepted Answer

A) This is an example where interest rate parity holds. 
B) This is an example of an arbitrage opportunity; interest rate parity does not hold. 
C) This is an example of a Purchasing Power Parity violation and an arbitrage opportunity. 
D) none of the options 
A) This is an example where interest rate parity holds. 
B) This is an example of an arbitrage opportunity; interest rate parity does not hold. 
C) This is an example of a Purchasing Power Parity violation and an arbitrage opportunity. 
D) none of the options

Question 19

Decision-making for multinational corporations formulating international sourcing,production,financing,and marketing strategies depends,primarily,on

Accepted Answer

A) risk management techniques. 
B) expertise of staff attorneys. 
C) luck. 
D) forecasting exchange rates as accurately as possible. 
A) risk management techniques. 
B) expertise of staff attorneys. 
C) luck. 
D) forecasting exchange rates as accurately as possible.

Question 20

Use the information below to answer the following question.
 $\begin{array}{rccccc} 
& {\text { Exchange Rate }} & \text { Interest Rate } & \text { APR } \
 S_{0}(\$ / €) & \$ 1.60=   €1.00 &i \$ & 2 \% \
F_{360}(\$ / €) & \$ 1.58= € 1.00 & i € & 4 \%
\end{array}$ If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

Accepted Answer

€1,000,000

Academic studies tend to discredit the validity of technical analysis.Which of the following is true?

Interest Rate Parity (IRP)is best defined as

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 ________.

Use the information below to answer the following question. Exchange Rate Interest Rate APR (\ /) \ 1.45=1.00 i\ 4\% (\ /) \ 1.48=1.00 i 3\% If you borrowed $1,000,000 for one year,how much money would you owe at maturity?

Forward parity states that

Researchers have found that the fundamental approach to exchange rate forecasting

The International Fisher Effect suggests that

Suppose that the one-year interest rate is 3.0 percent in Italy,the spot exchange rate is $1.20/€,and the one-year forward exchange rate is $1.18/€.What must the one-year interest rate be in the United States?

According to the technical approach,what matters in exchange rate determination

Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany,and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate,is $1.16/€.Assume that an arbitrageur can borrow up to $1,000,000.

Decision-making for multinational corporations formulating international sourcing,production,financing,and marketing strategies depends,primarily,on

Use the information below to answer the following question. Exchange Rate Interest Rate APR (\ /) \ 1.60=1.00 i\ 2\% (\ /) \ 1.58=1.00 i 4\% If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

International Monetary System

Globalization and the Multinational Firm

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 6: International Parity Relationships and Forecasting Foreign Exchange Rates

Academic studies tend to discredit the validity of technical analysis.Which of the following is true?

Interest Rate Parity (IRP)is best defined as

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 ________.

Use the information below to answer the following question. Exchange Rate Interest Rate APR (\ /) \ 1.45=1.00 i\ 4\% (\ /) \ 1.48=1.00 i 3\% If you borrowed $1,000,000 for one year,how much money would you owe at maturity?

Forward parity states that

Researchers have found that the fundamental approach to exchange rate forecasting

The International Fisher Effect suggests that

Suppose that the one-year interest rate is 3.0 percent in Italy,the spot exchange rate is $1.20/€,and the one-year forward exchange rate is $1.18/€.What must the one-year interest rate be in the United States?

According to the technical approach,what matters in exchange rate determination

Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany,and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate,is $1.16/€.Assume that an arbitrageur can borrow up to $1,000,000.

Decision-making for multinational corporations formulating international sourcing,production,financing,and marketing strategies depends,primarily,on

Use the information below to answer the following question. Exchange Rate Interest Rate APR (\ /) \ 1.60=1.00 i\ 2\% (\ /) \ 1.58=1.00 i 4\% If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

International Monetary System

Globalization and the Multinational Firm

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters