Question 1

What is the market portfolio?

Accepted Answer

A)  the large, well-diversified portfolio that investors should hold according to finance theory 
B)  the large, well-diversified portfolio without international securities 
C)  the portfolio that represents a global portfolio 
D)  the portfolio with strictly domestic securities 
A)  the large, well-diversified portfolio that investors should hold according to finance theory 
B)  the large, well-diversified portfolio without international securities 
C)  the portfolio that represents a global portfolio 
D)  the portfolio with strictly domestic securities

Question 2

If there is no systematic difference between the forward rate and the expected future spot rate,then the expected forward market return should be ________.

Accepted Answer

A)  zero 
B)  greater than one 
C)  equal to the stockholders' required rate of return 
D)  less than one but greater than zero 
A)  zero 
B)  greater than one 
C)  equal to the stockholders' required rate of return 
D)  less than one but greater than zero

Question 3

To determine the risk premium associated with an asset's expected return,two components of the return are usually cited,only the first,the covariance of the asset's return with the market portfolio,is used,because ________.

Accepted Answer

A)  the risk associated with the asset depends on the market risk 
B)  it is the only part of the asset's expected return that has risk 
C)  the risk of the second component can be diversified away 
D)  the market risk is the most difficult to calculate 
A)  the risk associated with the asset depends on the market risk 
B)  it is the only part of the asset's expected return that has risk 
C)  the risk of the second component can be diversified away 
D)  the market risk is the most difficult to calculate

Question 4

Multinational corporations most often hedge their transaction exchange rate risk using currency ________.

Accepted Answer

A)  options 
B)  futures 
C)  spreads 
D)  forward contracts 
A)  options 
B)  futures 
C)  spreads 
D)  forward contracts

Question 5

Why is it true that the hypothesis that the forward exchange rate is an unbiased predictor of the future spot exchange rate is equivalent to the hypothesis that the forward premium (or discount)on a foreign currency is an unbiased predictor of the rate of its appreciation (or depreciation)?

Accepted Answer

When the forward exchange rate is an unb

Question 6

What is the main determinant of the volatility of forward market returns?

Accepted Answer

The main and only determinant

Question 7

If interest rate parity prevails,what is the return from a hedged foreign currency investment?

Accepted Answer

A hedged foreign currency investment sel

Question 8

The ________ holds that it is the covariance of an asset's return with that of the market portfolio that determines the asset's risk premium.

Accepted Answer

A)  Law of One Price 
B)  Law of Iterated Expectations 
C)  Capital Asset Pricing Model 
D)  Interest Rate Parity Model 
A)  Law of One Price 
B)  Law of Iterated Expectations 
C)  Capital Asset Pricing Model 
D)  Interest Rate Parity Model

Question 9

When the forward rate equals the expected future spot rate,the forward rate is said to be a(n)________ of the future spot rate.

Accepted Answer

A)  unbiased predictor 
B)  forward market investment 
C)  forward market return 
D)  unsystematic risk 
A)  unbiased predictor 
B)  forward market investment 
C)  forward market return 
D)  unsystematic risk

Question 10

Modern portfolio theory developed by William F.Sharpe is the foundation of ________.

Accepted Answer

A)  currency market parity models 
B)  the balance sheet hedge 
C)  the capital asset pricing model 
D)  adjusted net present value model 
A)  currency market parity models 
B)  the balance sheet hedge 
C)  the capital asset pricing model 
D)  adjusted net present value model

Question 11

When the forward rate is equal to the expected future spot rate,the forward rate is said to be ________ the future spot rate.

Accepted Answer

A)  an information signal for 
B)  an unbiased predictor of 
C)  a hedge for 
D)  in parity with the expected future spot rate 
A)  an information signal for 
B)  an unbiased predictor of 
C)  a hedge for 
D)  in parity with the expected future spot rate

Question 12

Describe how you construct the uncertain $£$-denominated return from investing 1 $£$ in the Swiss franc money market.

Accepted Answer

If you invest@#LAT-DLM& in the Swiss money market,

What is the market portfolio?

If there is no systematic difference between the forward rate and the expected future spot rate,then the expected forward market return should be ________.

To determine the risk premium associated with an asset's expected return,two components of the return are usually cited,only the first,the covariance of the asset's return with the market portfolio,is used,because ________.

Multinational corporations most often hedge their transaction exchange rate risk using currency ________.

Why is it true that the hypothesis that the forward exchange rate is an unbiased predictor of the future spot exchange rate is equivalent to the hypothesis that the forward premium (or discount)on a foreign currency is an unbiased predictor of the rate of its appreciation (or depreciation)?

What is the main determinant of the volatility of forward market returns?

If interest rate parity prevails,what is the return from a hedged foreign currency investment?

The ________ holds that it is the covariance of an asset's return with that of the market portfolio that determines the asset's risk premium.

When the forward rate equals the expected future spot rate,the forward rate is said to be a(n)________ of the future spot rate.

Modern portfolio theory developed by William F.Sharpe is the foundation of ________.

When the forward rate is equal to the expected future spot rate,the forward rate is said to be ________ the future spot rate.

Describe how you construct the uncertain $£$ -denominated return from investing 1 $£$ in the Swiss franc money market.

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Risk Management and the Foreign Currency Hedging Decision

Financing International Trade

Managing Net Working Capital

Foreign Currency Futures and Options

Interest Rates and Foreign Currency Swaps

Filters

Exam 7: Speculation and Risk in the Foreign Exchange Market

What is the market portfolio?

If there is no systematic difference between the forward rate and the expected future spot rate,then the expected forward market return should be ________.

To determine the risk premium associated with an asset's expected return,two components of the return are usually cited,only the first,the covariance of the asset's return with the market portfolio,is used,because ________.

Multinational corporations most often hedge their transaction exchange rate risk using currency ________.

Why is it true that the hypothesis that the forward exchange rate is an unbiased predictor of the future spot exchange rate is equivalent to the hypothesis that the forward premium (or discount)on a foreign currency is an unbiased predictor of the rate of its appreciation (or depreciation)?

What is the main determinant of the volatility of forward market returns?

If interest rate parity prevails,what is the return from a hedged foreign currency investment?

The ________ holds that it is the covariance of an asset's return with that of the market portfolio that determines the asset's risk premium.

When the forward rate equals the expected future spot rate,the forward rate is said to be a(n)________ of the future spot rate.

Modern portfolio theory developed by William F.Sharpe is the foundation of ________.

When the forward rate is equal to the expected future spot rate,the forward rate is said to be ________ the future spot rate.

Describe how you construct the uncertain £££ -denominated return from investing 1 £££ in the Swiss franc money market.

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Risk Management and the Foreign Currency Hedging Decision

Financing International Trade

Managing Net Working Capital

Foreign Currency Futures and Options

Interest Rates and Foreign Currency Swaps

Filters

Describe how you construct the uncertain $£$ -denominated return from investing 1 $£$ in the Swiss franc money market.