Question 1

If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then an investor should

Accepted Answer

A)  invest only in dollars. 
B)  invest only in euros. 
C)  be indifferent between dollars and euros. 
D)  invest only in dollars if the exchange rate is expected to remain constant. 
E)  invest only in euros if the exchange rate is expected to remain constant. 
A)  invest only in dollars. 
B)  invest only in euros. 
C)  be indifferent between dollars and euros. 
D)  invest only in dollars if the exchange rate is expected to remain constant. 
E)  invest only in euros if the exchange rate is expected to remain constant.

Question 2

A the beginning of 2012, you pay $100 for a share of stock that then pays you a dividend of $1 at the beginning of 2013. If the stock price rises from $100 to $109 per share over the year, then you have earned an annual rate of return of

Accepted Answer

A)  5 percent. 
B)  1 percent. 
C)  9 percent. 
D)  4 percent. 
E)  10 percent. 
A)  5 percent. 
B)  1 percent. 
C)  9 percent. 
D)  4 percent. 
E)  10 percent.

Question 3

Explain what is a "vehicle currency." Why is the U.S. dollar considered a vehicle currency?

Accepted Answer

A vehicle currency is one that is widely

Question 4

When a country's currency depreciates

Accepted Answer

A)  foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are more expensive. 
B)  foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are cheaper. 
C)  foreigners find that its exports are cheaper; however, domestic residents are not affected. 
D)  foreigners are not affected, but domestic residents find that imports from abroad are more expensive. 
E)  foreigners find that its exports are cheaper and domestic residents find that imports from abroad are more expensive. 
A)  foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are more expensive. 
B)  foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are cheaper. 
C)  foreigners find that its exports are cheaper; however, domestic residents are not affected. 
D)  foreigners are not affected, but domestic residents find that imports from abroad are more expensive. 
E)  foreigners find that its exports are cheaper and domestic residents find that imports from abroad are more expensive.

Question 5

Explain risk and liquidity of assets.

Accepted Answer

Risk is the variability an asset contrib

Question 6

What is the interest parity condition?

Accepted Answer

The condition that the expected returns

Question 7

Which of the following is NOT an example of a financial derivative?

Accepted Answer

A)  forwards 
B)  bonds 
C)  swaps 
D)  futures 
E)  options 
A)  forwards 
B)  bonds 
C)  swaps 
D)  futures 
E)  options

Question 8

What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 50 dollars in New York and 100 Pounds in London?

Accepted Answer

A)  1.5 dollars per British pound 
B)  0.5 dollars per British pound 
C)  2.5 dollars per British pound 
D)  3.5 dollars per British pound 
E)  2 dollars per British pound 
A)  1.5 dollars per British pound 
B)  0.5 dollars per British pound 
C)  2.5 dollars per British pound 
D)  3.5 dollars per British pound 
E)  2 dollars per British pound

Question 9

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.50 dollars per British pound?

Accepted Answer

A)  10 British pounds 
B)  20 British pounds 
C)  30 British pounds 
D)  35 British pounds 
E)  25 British pounds 
A)  10 British pounds 
B)  20 British pounds 
C)  30 British pounds 
D)  35 British pounds 
E)  25 British pounds

Question 10

In the year 2012, Shinzo Abe became prime minister of Japan, promising bold policies to improve Japan's economy. What was the focus of his policies and how did they affect Japan's trade position?

Accepted Answer

What has been called "Abenomics" involve

Question 11

Which of the following type of funds cater to wealthy individuals, are not bound by government regulations, and are actively traded in foreign exchange markets?

Accepted Answer

A)  pension funds 
B)  mutual funds 
C)  hedge funds 
D)  exchange funds 
A)  pension funds 
B)  mutual funds 
C)  hedge funds 
D)  exchange funds

Question 12

What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.167 per euro, next year's expected exchange rate is $1.10 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%?

Accepted Answer

A)  10% 
B)  11% 
C)  -1% 
D)  0% 
A)  10% 
B)  11% 
C)  -1% 
D)  0%

Question 13

Show graphically a drop in the interest rate paid by euro deposits. What is the effect on the dollar?

Accepted Answer

A drop in the intere

Question 14

If the goods' money prices do not change, an appreciation of the dollar against the pound

Accepted Answer

A)  makes British sweaters cheaper in terms of American jeans. 
B)  makes British sweaters more expensive in terms of American jeans. 
C)  doesn't change the relative price of sweaters and jeans. 
D)  makes American jeans cheaper in terms of British sweaters. 
E)  makes British jeans more expensive in Britain. 
A)  makes British sweaters cheaper in terms of American jeans. 
B)  makes British sweaters more expensive in terms of American jeans. 
C)  doesn't change the relative price of sweaters and jeans. 
D)  makes American jeans cheaper in terms of British sweaters. 
E)  makes British jeans more expensive in Britain.

If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then an investor should

A the beginning of 2012, you pay $100 for a share of stock that then pays you a dividend of $1 at the beginning of 2013. If the stock price rises from $100 to $109 per share over the year, then you have earned an annual rate of return of

Explain what is a "vehicle currency." Why is the U.S. dollar considered a vehicle currency?

When a country's currency depreciates

Explain risk and liquidity of assets.

What is the interest parity condition?

Which of the following is NOT an example of a financial derivative?

What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 50 dollars in New York and 100 Pounds in London?

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.50 dollars per British pound?

In the year 2012, Shinzo Abe became prime minister of Japan, promising bold policies to improve Japan's economy. What was the focus of his policies and how did they affect Japan's trade position?

Which of the following type of funds cater to wealthy individuals, are not bound by government regulations, and are actively traded in foreign exchange markets?

What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.167 per euro, next year's expected exchange rate is $1.10 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%?

Show graphically a drop in the interest rate paid by euro deposits. What is the effect on the dollar?

If the goods' money prices do not change, an appreciation of the dollar against the pound

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

Exam 14: Exchange Rates and the Foreign Exchange Market: an Asset Approach

If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then an investor should

A the beginning of 2012, you pay $100 for a share of stock that then pays you a dividend of $1 at the beginning of 2013. If the stock price rises from $100 to $109 per share over the year, then you have earned an annual rate of return of

Explain what is a "vehicle currency." Why is the U.S. dollar considered a vehicle currency?

When a country's currency depreciates

Explain risk and liquidity of assets.

What is the interest parity condition?

Which of the following is NOT an example of a financial derivative?

What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 50 dollars in New York and 100 Pounds in London?

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.50 dollars per British pound?

In the year 2012, Shinzo Abe became prime minister of Japan, promising bold policies to improve Japan's economy. What was the focus of his policies and how did they affect Japan's trade position?

Which of the following type of funds cater to wealthy individuals, are not bound by government regulations, and are actively traded in foreign exchange markets?

What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.167 per euro, next year's expected exchange rate is $1.10 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%?

Show graphically a drop in the interest rate paid by euro deposits. What is the effect on the dollar?

If the goods' money prices do not change, an appreciation of the dollar against the pound

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters