Question 1

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. C

Question 2

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 3

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" involved monetary policies designed to reduce the value of the Japanese Yen relative to other currencies. This resulted in increased exports and reduced imports, strengthening the Japanese economy.

Question 4

Who are the major participants in the foreign exchange market?

Accepted Answer

(1) Commercial banks

Question 5

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 6

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.

Question 7

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  A depreciation of a country's currency makes its goods cheaper for foreigners. 
B)  A depreciation of a country's currency makes its goods more expensive for foreigners. 
C)  A depreciation of a country's currency makes its goods cheaper for its own residents. 
D)  A depreciation of a country's currency makes its goods cheaper. 
E)  An appreciation of a country's currency makes its goods more expensive. 
A)  A depreciation of a country's currency makes its goods cheaper for foreigners. 
B)  A depreciation of a country's currency makes its goods more expensive for foreigners. 
C)  A depreciation of a country's currency makes its goods cheaper for its own residents. 
D)  A depreciation of a country's currency makes its goods cheaper. 
E)  An appreciation of a country's currency makes its goods more expensive.

Question 8

Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro. Further, assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar deposits is 10 percent and on euro it is 4 percent. Under these assumptions

Accepted Answer

A)  interest parity does not hold. 
B)  interest parity does hold. 
C)  it is hard to tell whether interest parity does or does not hold. 
D)  interest parity fluctuates. 
E)  Not enough information is given to answer the question. 
A)  interest parity does not hold. 
B)  interest parity does hold. 
C)  it is hard to tell whether interest parity does or does not hold. 
D)  interest parity fluctuates. 
E)  Not enough information is given to answer the question.

Question 9

-Determine for each, whether the interest parity condition holds or not, if   = 1.10

Accepted Answer

The answer of  
-Determine for each, whether the interest...

Question 10

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 11

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 12

Based on the case study, "Exchange Rates, Auto Prices, and Currency Wars," explain why exchange rates are of critical importance to firms in the automobile industry, and how Japan has benefited from changes in the value of the Yen.

Accepted Answer

See the discussion at the beginning of t

Question 13

The covered interest rate parity condition can be stated as follows: The interest rate on dollar deposits equals the interest rate on euro deposits ________ the forward ________ on euros against dollars.

Accepted Answer

A)  plus; premium 
B)  minus; premium 
C)  plus; discount 
D)  minus; discount 
E)  times; premium 
A)  plus; premium 
B)  minus; premium 
C)  plus; discount 
D)  minus; discount 
E)  times; premium

Question 14

Calculate the interest rate in the United States, if interest parity condition holds, for the following 15 cases.

Accepted Answer

The answer of Calculate the interest rate in the United...

Question 15

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 16

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 17

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 18

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 19

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 20

A(n) ________ of a nation's currency will cause imports to ________ and exports to ________, all other things held constant.

Accepted Answer

A)  depreciation; increase; decrease 
B)  appreciation; decrease; increase 
C)  depreciation; decrease; increase 
D)  appreciation; increase; increase 
E)  depreciation; decrease; decrease 
A)  depreciation; increase; decrease 
B)  appreciation; decrease; increase 
C)  depreciation; decrease; increase 
D)  appreciation; increase; increase 
E)  depreciation; decrease; decrease

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

Futures contracts differ from forward contracts in that

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

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?

Who are the major participants in the foreign exchange market?

Which one of the following statements is the MOST accurate?

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

Which one of the following statements is the MOST accurate?

Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro. Further, assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar deposits is 10 percent and on euro it is 4 percent. Under these assumptions

-Determine for each, whether the interest parity condition holds or not, if = 1.10

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

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

Based on the case study, "Exchange Rates, Auto Prices, and Currency Wars," explain why exchange rates are of critical importance to firms in the automobile industry, and how Japan has benefited from changes in the value of the Yen.

The covered interest rate parity condition can be stated as follows: The interest rate on dollar deposits equals the interest rate on euro deposits ________ the forward ________ on euros against dollars.

Calculate the interest rate in the United States, if interest parity condition holds, for the following 15 cases.

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?

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?

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

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?

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%?

A(n) ________ of a nation's currency will cause imports to ________ and exports to ________, all other things held constant.

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

The covered interest rate parity condition can be stated as follows: The interest rate on dollar deposits equals the interest rate on euro deposits the forward on euros against dollars.

A(n) of a nation's currency will cause imports to and exports to , all other things held constant.