Question 1

A foreign exchange swap

Accepted Answer

A)  is a spot sale of a currency. 
B)  is a forward repurchase of the currency. 
C)  is a spot sale of a currency combined with a forward repurchase of the currency. 
D)  is a spot sale of a currency combined with a forward sale of the currency. 
E)  make up a negligible proportion of all foreign exchange trading. 
A)  is a spot sale of a currency. 
B)  is a forward repurchase of the currency. 
C)  is a spot sale of a currency combined with a forward repurchase of the currency. 
D)  is a spot sale of a currency combined with a forward sale of the currency. 
E)  make up a negligible proportion of all foreign exchange trading.

Question 2

Calculate the Expected Dollar Depreciation Rate against the euro and the expected dollar return on euro deposits if the expected exchange rate is $1.10 per euro.

Accepted Answer

The answer of Calculate the Expected Dollar Depreciation Rate against...

Question 3

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  For a fixed interest rate, a rise in the expected future exchange rate causes a rise in the current exchange rate. 
B)  For a fixed interest rate, a rise in the expected future exchange rate causes a fall in the current exchange rate. 
C)  For a fixed interest rate, a rise in the expected future exchange rate does not cause a change in the current exchange rate. 
D)  For a given dollar interest rate and a constant expected exchange rate, a rise in the interest rate of the euro causes the dollar to depreciate. 
E)  For a fixed interest rate, a fall in the expected future exchange rate causes a rise in the current exchange rate. 
A)  For a fixed interest rate, a rise in the expected future exchange rate causes a rise in the current exchange rate. 
B)  For a fixed interest rate, a rise in the expected future exchange rate causes a fall in the current exchange rate. 
C)  For a fixed interest rate, a rise in the expected future exchange rate does not cause a change in the current exchange rate. 
D)  For a given dollar interest rate and a constant expected exchange rate, a rise in the interest rate of the euro causes the dollar to depreciate. 
E)  For a fixed interest rate, a fall in the expected future exchange rate causes a rise in the current exchange rate.

Question 4

What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.10 per euro, next year's expected exchange rate is $1.165 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% 
E)  15% 
A)  10% 
B)  11% 
C)  -1% 
D)  0% 
E)  15%

Question 5

Compute how many dollars it would cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds for the following exchange rates.

Accepted Answer

The answer of Compute how many dollars it would cost...

Question 6

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 7

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Since dollar and yen interest rates are measured in comparable terms, they can move quite differently over time. 
B)  Since dollar and yen interest rates are not measured in comparable terms, they can move quite differently over time. 
C)  Since dollar and yen interest rates are measured in comparable terms, they move quite the same over time. 
D)  Since dollar and yen interest rates are measured in comparable terms, they still move quite differently over time. 
E)  Since dollar and yen interest rates are so similar, they move quite the same way over time. 
A)  Since dollar and yen interest rates are measured in comparable terms, they can move quite differently over time. 
B)  Since dollar and yen interest rates are not measured in comparable terms, they can move quite differently over time. 
C)  Since dollar and yen interest rates are measured in comparable terms, they move quite the same over time. 
D)  Since dollar and yen interest rates are measured in comparable terms, they still move quite differently over time. 
E)  Since dollar and yen interest rates are so similar, they move quite the same way over time.

Question 8

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 9

Explain risk and liquidity of assets.

Accepted Answer

Risk is the variability an asset contrib

Question 10

Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium.

Accepted Answer

The foreign exchange market is in equili

Question 11

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

Accepted Answer

A)  an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent. 
B)  an investor should invest only in euros if the expected dollar depreciation against the euro is 8 percent. 
C)  an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 8 percent. 
D)  an investor should invest only in dollars. 
E)  an investor should invest only in euros. 
A)  an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent. 
B)  an investor should invest only in euros if the expected dollar depreciation against the euro is 8 percent. 
C)  an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 8 percent. 
D)  an investor should invest only in dollars. 
E)  an investor should invest only in euros.

Question 12

Find the exchange rate between the dollar and the British pounds for the following cases.

Accepted Answer

The answer of Find the exchange rate between the dollar...

Question 13

Futures contracts differ from forward contracts in that

Accepted Answer

A)  future contracts ensures you will receive a certain amount of foreign currency at a specified future date. 
B)  future contracts bind you into your end of the deal. 
C)  future contracts allow you to sell your contract on an organized futures exchange. 
D)  future contracts are a disadvantage if your views about the future spot exchange rate are to change. 
E)  futures contracts don't allow you to realize a profit or a loss right away. 
A)  future contracts ensures you will receive a certain amount of foreign currency at a specified future date. 
B)  future contracts bind you into your end of the deal. 
C)  future contracts allow you to sell your contract on an organized futures exchange. 
D)  future contracts are a disadvantage if your views about the future spot exchange rate are to change. 
E)  futures contracts don't allow you to realize a profit or a loss right away.

Question 14

Which of the following statements is TRUE about a vehicle currency?

Accepted Answer

A)  It is widely used to denominate contracts made by parties who reside in the country that issues the vehicle currency. 
B)  The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange deals. 
C)  There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar. 
D)  The pound sterling, once second only to the dollar as a key international currency, is beginning to rise in importance. 
E)  Vehicle currencies include nondeliverable currencies like the renminbi. 
A)  It is widely used to denominate contracts made by parties who reside in the country that issues the vehicle currency. 
B)  The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange deals. 
C)  There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar. 
D)  The pound sterling, once second only to the dollar as a key international currency, is beginning to rise in importance. 
E)  Vehicle currencies include nondeliverable currencies like the renminbi.

Question 15

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 2.00 dollars per British pound?

Accepted Answer

A)  22.5 British pounds 
B)  32.5 British pounds 
C)  12.5 British pounds 
D)  40 British pounds 
E)  30 British pounds 
A)  22.5 British pounds 
B)  32.5 British pounds 
C)  12.5 British pounds 
D)  40 British pounds 
E)  30 British pounds

Question 16

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 17

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.80 dollars per one British pound?

Accepted Answer

A)  40 dollars 
B)  90 dollars 
C)  50 dollars 
D)  100 dollars 
E)  95 dollars 
A)  40 dollars 
B)  90 dollars 
C)  50 dollars 
D)  100 dollars 
E)  95 dollars

Question 18

Compute how many British pounds it would cost to buy a pair of American designer jeans costing $45.

Accepted Answer

The answer of Compute how many British pounds it would...

Question 19

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  A rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
B)  A rise in the interest rate offered by dollar deposits causes the dollar to depreciate. 
C)  A rise in the interest rate offered by dollar deposits does not affect the U.S. dollar. 
D)  For a given euro interest rate and constant expected exchange rate, a rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
E)  A rise in the interest rate offered by the dollar causes the euro to appreciate. 
A)  A rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
B)  A rise in the interest rate offered by dollar deposits causes the dollar to depreciate. 
C)  A rise in the interest rate offered by dollar deposits does not affect the U.S. dollar. 
D)  For a given euro interest rate and constant expected exchange rate, a rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
E)  A rise in the interest rate offered by the dollar causes the euro to appreciate.

Question 20

Explain why (holding interest rates constant), a rise in the expected depreciation in a country's currency leads to depreciation of that currency today.

Accepted Answer

A rise in the expected depreciation rate

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

A foreign exchange swap

Calculate the Expected Dollar Depreciation Rate against the euro and the expected dollar return on euro deposits if the expected exchange rate is $1.10 per euro.

Which one of the following statements is the MOST accurate?

What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.10 per euro, next year's expected exchange rate is $1.165 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%?

Compute how many dollars it would cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds for the following exchange rates.

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

Which one of the following statements is the MOST accurate?

When a country's currency depreciates

Explain risk and liquidity of assets.

Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium.

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

Find the exchange rate between the dollar and the British pounds for the following cases.

Futures contracts differ from forward contracts in that

Which of the following statements is TRUE about a vehicle currency?

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 2.00 dollars per British pound?

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?

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.80 dollars per one British pound?

Compute how many British pounds it would cost to buy a pair of American designer jeans costing $45.

Which one of the following statements is the MOST accurate?

Explain why (holding interest rates constant), a rise in the expected depreciation in a country's currency leads to depreciation of that currency today.

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

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