Question 1

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

Accepted Answer

The answer of If you borrowed €1,000,000 for one year,...

Question 2

USING YOUR PREVIOUS ANSWERS and a bit more work, find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m, traded for dollars at the spot rate and invested at i$ = 4%.

Accepted Answer

Question 3

One implication of the random walk hypothesis is

Accepted Answer

A) given the efficiency of foreign exchange markets, it is difficult to outperform the market-based forecasts unless the forecaster has access to private information that is not yet reflected in the current exchange rate. 
B) given the efficiency of foreign exchange markets, it is difficult to outperform the market-based forecasts unless the forecaster has access to private information that is already reflected in the current exchange rate. 
C) given the relative inefficiency of foreign exchange markets, it is difficult to outperform the technical forecasts unless the forecaster has access to private information that is not yet reflected in the current futures exchange rate. 
D) none of the above 
A) given the efficiency of foreign exchange markets, it is difficult to outperform the market-based forecasts unless the forecaster has access to private information that is not yet reflected in the current exchange rate. 
B) given the efficiency of foreign exchange markets, it is difficult to outperform the market-based forecasts unless the forecaster has access to private information that is already reflected in the current exchange rate. 
C) given the relative inefficiency of foreign exchange markets, it is difficult to outperform the technical forecasts unless the forecaster has access to private information that is not yet reflected in the current futures exchange rate. 
D) none of the above

Question 4

Studies of the accuracy of paid exchange rate forecasters

Accepted Answer

A) tend to support the view that "you get what you pay for". 
B) tend to support the view that forecasting is easy, at least with regard to major currencies like the euro and Japanese yen. 
C) tend to support the view that banks do their best forecasting with the yen. 
D) none of the above 
A) tend to support the view that "you get what you pay for". 
B) tend to support the view that forecasting is easy, at least with regard to major currencies like the euro and Japanese yen. 
C) tend to support the view that banks do their best forecasting with the yen. 
D) none of the above

Question 5

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

Accepted Answer

The answer of If you borrowed €1,000,000 for one year,...

Question 6

Suppose that the one-year interest rate is 4.0 percent in the Italy, the spot exchange rate is $1.60/€, and the one-year forward exchange rate is $1.58/€. What must one-year interest rate be in the United States?

Accepted Answer

A) 2% 
B) 2.7% 
C) 5.32% 
D) None of the above 
A) 2% 
B) 2.7% 
C) 5.32% 
D) None of the above

Question 7

There is (at least) one (smallish) profitable arbitrage at these prices. What is it?

Accepted Answer

The answer of There is (at least) one (smallish) profitable...

Question 8

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

Accepted Answer

A) 1.2833% 
B) 1.0128% 
C) 4.75% 
D) None of the above 
A) 1.2833% 
B) 1.0128% 
C) 4.75% 
D) None of the above

Question 9

Consider a bank dealer who faces the following spot rates and interest rates. What should he set his 1-year forward bid price at?

Accepted Answer

A) $1.4324/€ 
B) $1.4358/€ 
C) $1.4662/€ 
D) $1.4676/€ 
A) $1.4324/€ 
B) $1.4358/€ 
C) $1.4662/€ 
D) $1.4676/€

Question 10

The Efficient Markets Hypothesis states

Accepted Answer

A) markets tend to evolve to low transactions costs and speedy execution of orders. 
B) current asset prices (e.g. exchange rates) fully reflect all the available and relevant information. 
C) current exchange rates cannot be explained by such fundamental forces as money supplies, inflation rates and so forth. 
D) none of the above 
A) markets tend to evolve to low transactions costs and speedy execution of orders. 
B) current asset prices (e.g. exchange rates) fully reflect all the available and relevant information. 
C) current exchange rates cannot be explained by such fundamental forces as money supplies, inflation rates and so forth. 
D) none of the above

Question 11

In view of the fact that PPP is the manifestation of the law of one price applied to a standard commodity basket,

Accepted Answer

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 
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

Question 12

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 If you had €1,000,000 and traded it...

Question 13

When Interest Rate Parity (IRP) does not hold

Accepted Answer

A) there is usually a high degree of inflation in at least one country. 
B) the financial markets are in equilibrium. 
C) there are opportunities for covered interest arbitrage. 
D) both b and c 
A) there is usually a high degree of inflation in at least one country. 
B) the financial markets are in equilibrium. 
C) there are opportunities for covered interest arbitrage. 
D) both b and c

Question 14

USING YOUR PREVIOUS ANSWERS and a bit more work, find the 1-year forward ASK exchange rate in $ per € that that satisfies IRP from the perspective of a customer.

Accepted Answer

The answer of USING YOUR PREVIOUS ANSWERS and a bit...

Question 15

If the interest rate in the U.S. is i$ = 5 percent for the next year and interest rate in the U.K. is i£ = 8 percent for the next year, uncovered IRP suggests that

Accepted Answer

A) the pound is expected to depreciate against the dollar by about 3 percent. 
B) the pound is expected to appreciate against the dollar by about 3 percent. 
C) the dollar is expected to appreciate against the pound by about 3 percent. 
D) both a and c 
A) the pound is expected to depreciate against the dollar by about 3 percent. 
B) the pound is expected to appreciate against the dollar by about 3 percent. 
C) the dollar is expected to appreciate against the pound by about 3 percent. 
D) both a and c

Question 16

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

Accepted Answer

A) 0.07. 
B) 0.9849. 
C) -0.0198. 
D) 4.5. 
A) 0.07. 
B) 0.9849. 
C) -0.0198. 
D) 4.5.

Question 17

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 18

If you could accurately and consistently forecast exchange rates

Accepted Answer

A) this would be a very handy thing as girls prefer guys with skills. 
B) you could impress your dates. 
C) you could make a great deal of money. 
D) all of the above 
A) this would be a very handy thing as girls prefer guys with skills. 
B) you could impress your dates. 
C) you could make a great deal of money. 
D) all of the above

Question 19

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 If you had borrowed $1,000,000 and traded...

Question 20

Covered Interest Arbitrage (CIA) activities will result in

Accepted Answer

A) an unstable international financial markets. 
B) restoring equilibrium prices quickly. 
C) a disintermediation. 
D) no effect on the market. 
A) an unstable international financial markets. 
B) restoring equilibrium prices quickly. 
C) a disintermediation. 
D) no effect on the market.

Exam 6: International Parity Relationships and Forecasting Foreign Exchange Rates

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

USING YOUR PREVIOUS ANSWERS and a bit more work, find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m, traded for dollars at the spot rate and invested at i$ = 4%.

One implication of the random walk hypothesis is

Studies of the accuracy of paid exchange rate forecasters

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

Suppose that the one-year interest rate is 4.0 percent in the Italy, the spot exchange rate is $1.60/€, and the one-year forward exchange rate is $1.58/€. What must one-year interest rate be in the United States?

There is (at least) one (smallish) profitable arbitrage at these prices. What is it?

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

Consider a bank dealer who faces the following spot rates and interest rates. What should he set his 1-year forward bid price at?

The Efficient Markets Hypothesis states

In view of the fact that PPP is the manifestation of the law of one price applied to a standard commodity basket,

If you had €1,000,000 and traded it for USD at the spot rate, how many USD will you get?

When Interest Rate Parity (IRP) does not hold

USING YOUR PREVIOUS ANSWERS and a bit more work, find the 1-year forward ASK exchange rate in $ per € that that satisfies IRP from the perspective of a customer.

If the interest rate in the U.S. is i$ = 5 percent for the next year and interest rate in the U.K. is i£ = 8 percent for the next year, uncovered IRP suggests that

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

Researchers have found that the fundamental approach to exchange rate forecasting

If you could accurately and consistently forecast exchange rates

If you had borrowed $1,000,000 and traded for euro at the spot rate, how many € do you receive?

Covered Interest Arbitrage (CIA) activities will result in

Globalization and the Multinational Firm

International Monetary System

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

USING YOUR PREVIOUS ANSWERS and a bit more work, find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed €1m, traded for dollars at the spot rate and invested at i_$ = 4%.

If the interest rate in the U.S. is i_$ = 5 percent for the next year and interest rate in the U.K. is i_£ = 8 percent for the next year, uncovered IRP suggests that