Question 1

A U.S. firm has £50 million in assets in Britain that they need to repatriate in six months.

Accepted Answer

A) buying pounds forward. 
B) selling pounds forward. 
C) borrowing pounds. 
D) both selling pounds forward and borrowing pounds. 
E) both buying pounds forward and borrowing pounds. 
A) buying pounds forward. 
B) selling pounds forward. 
C) borrowing pounds. 
D) both selling pounds forward and borrowing pounds. 
E) both buying pounds forward and borrowing pounds.

Question 2

The agreement that ended the era of fixed exchange rates for the major economies was called the

Accepted Answer

A) Louvre Accord. 
B) Bretton Woods Agreement. 
C) Smithsonian Agreement I. 
D) Smithsonian Agreement II. 
E) Plaza Accord. 
A) Louvre Accord. 
B) Bretton Woods Agreement. 
C) Smithsonian Agreement I. 
D) Smithsonian Agreement II. 
E) Plaza Accord.

Question 3

A U.S. bank converted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.2 francs per dollar. The borrower agreed to repay the principal plus 5 percent interest in one year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.3 francs per dollar. What was the bank's dollar rate of return?

Accepted Answer

A) 26.00 percent 
B) -2.69 percent 
C) 7.14 percent 
D) -3.08 percent 
E) 5.00 percent 
A) 26.00 percent 
B) -2.69 percent 
C) 7.14 percent 
D) -3.08 percent 
E) 5.00 percent

Question 4

A U.S. firm agrees to import textiles from Hong Kong and pay in 90 days. The invoice requires payment in Hong Kong dollars. The U.S. importer could hedge this currency risk by buying the HK dollar forward.

Accepted Answer

A) True 
 B)False

Question 5

A British bank has borrowed dollars in the United States,but is now concerned about its currency risk. What alternatives does it have to limit its risk?
 Be specific.

Accepted Answer

The bank could buy dollars (sell pounds)

Question 6

You can buy or sell the yen spot at ¥102 to the dollar. You can buy or sell the yen one-year forward at ¥104 to the dollar. If U.S. annual interest rates are 4 percent,what must be the approximate one-year Japanese interest rate if interest rate parity holds?

Accepted Answer

A) 6.04 percent 
B) 3.20 percent 
C) 2.75 percent 
D) 4.73 percent 
E) 6.80 percent 
A) 6.04 percent 
B) 3.20 percent 
C) 2.75 percent 
D) 4.73 percent 
E) 6.80 percent

Question 7

A Swiss bank converted 1 million Swiss francs to euros to make a euro loan to a customer when the exchange rate was 1.85 francs per euro. The borrower agreed to repay the principal plus 3.75 percent interest in one year. The borrower repaid euros at loan maturity and when the loan was repaid the exchange rate was 1.98 francs per dollar. What was the bank's franc rate of return?

Accepted Answer

A) 7.75 percent 
B) 11.04 percent 
C) 9.94 percent 
D) -2.82 percent 
E) 5.71 percent 
A) 7.75 percent 
B) 11.04 percent 
C) 9.94 percent 
D) -2.82 percent 
E) 5.71 percent

Question 8

What are the major differences between the interbank foreign exchange market and the foreign currency exchanges?

Accepted Answer

In the interbank market,the deals are ne

Question 9

A European investor can earn a 4.75 percent annual interest rate in Europe or 2.75 percent per year in the United States. If the spot exchange rate is $1.58 per euro,at what one-year forward rate would an investor be indifferent between the U.S. and European investments?

Accepted Answer

A) $1.5484 
B) $1.6108 
C) $1.5335 
D) $1.5498 
E) $1.5977 
A) $1.5484 
B) $1.6108 
C) $1.5335 
D) $1.5498 
E) $1.5977

Question 10

Is it reasonable to expect real rates of interest to be identical across countries?
 Explain. What does this imply about parity?

Accepted Answer

Among developed economies,real interest

Question 11

Which of the following are likely to lead to an appreciation of the U.S. dollar (ceteris paribus)?
I. Higher real U.S. interest rates
II. Lower U.S. inflation
III. Higher nominal U.S. interest rates

Accepted Answer

A) II and III only 
B) I and III only 
C) I and II only 
D) II only 
E) I,II,and III 
A) II and III only 
B) I and III only 
C) I and II only 
D) II only 
E) I,II,and III

Question 12

If interest rate parity holds and the annual German nominal interest rate is 3 percent and the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both countries,then inflation in Germany is about _______________ than in the United States.

Accepted Answer

A) 1 percent higher 
B) 2 percent higher 
C) 1 percent lower 
D) 4 percent lower 
E) 2 percent lower 
A) 1 percent higher 
B) 2 percent higher 
C) 1 percent lower 
D) 4 percent lower 
E) 2 percent lower

Question 13

If a foreign currency appreciates,that country's goods and services become relatively more expensive for U.S. buyers.

Accepted Answer

A) True 
 B)False

Question 14

An FI's position in FX markets generally reflects four trading activities. What are they,and which one(s)cause the FI to bear FX risk?

Accepted Answer

(1)Buying and selling foreign currencies

Question 15

If the United States has inflation of 3 percent and Europe has inflation of 5 percent,the value of the euro should increase,ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 16

If the dollar is initially worth 120 yen and then the exchange rate changes so that the dollar is now worth 115 yen,the value of the yen has depreciated.

Accepted Answer

A) True 
 B)False

Question 17

The spot rate for the Argentine peso is $0.3600 per peso. Over the year,inflation in Argentina is 10 percent and U.S. inflation is 4 percent. If purchasing power parity holds,at year-end the exchange rate should be approximately ______________ dollars per peso.

Accepted Answer

A) 0.2987 
B) 0.3614 
C) 0.2875 
D) 0.3384 
E) 0.3015 
A) 0.2987 
B) 0.3614 
C) 0.2875 
D) 0.3384 
E) 0.3015

Question 18

A U.S. FI has US$200 million worth of one-year loans earning an average rate of return of 6 percent. The FI also has one-year single-payment Canadian dollar loans of C$110 million earning 8 percent. The FI's funding source is $300 million in US$ one-year CDs,on which they are paying 4 percent. Initially the exchange rate is C$1.10 per US$1.The one-year forward rate is C$1.14 per US$1. What is the bank's dollar percent spread if they hedge fully using forwards?

Accepted Answer

Hedge by selling C$ forward. The current

Question 19

At the beginning of the year the exchange rate between the Brazilian real and the U.S. dollar was 2.2 reals per dollar. Over the year,Brazilian inflation was 12 percent and U.S. inflation was 4 percent. If purchasing power parity holds,at year-end the exchange rate should be approximately ________________ dollars per real.

Accepted Answer

A) 2.3913 
B) 0.4895 
C) 2.8498 
D) 0.4182 
E) 0.3440 
A) 2.3913 
B) 0.4895 
C) 2.8498 
D) 0.4182 
E) 0.3440

Question 20

In 1973,the Smithsonian Agreement II eliminated fixed exchange rates for the major economies.

Accepted Answer

A) True 
 B)False

A U.S. firm has £50 million in assets in Britain that they need to repatriate in six months.

The agreement that ended the era of fixed exchange rates for the major economies was called the

A U.S. firm agrees to import textiles from Hong Kong and pay in 90 days. The invoice requires payment in Hong Kong dollars. The U.S. importer could hedge this currency risk by buying the HK dollar forward.

A British bank has borrowed dollars in the United States,but is now concerned about its currency risk. What alternatives does it have to limit its risk? Be specific.

You can buy or sell the yen spot at ¥102 to the dollar. You can buy or sell the yen one-year forward at ¥104 to the dollar. If U.S. annual interest rates are 4 percent,what must be the approximate one-year Japanese interest rate if interest rate parity holds?

What are the major differences between the interbank foreign exchange market and the foreign currency exchanges?

A European investor can earn a 4.75 percent annual interest rate in Europe or 2.75 percent per year in the United States. If the spot exchange rate is $1.58 per euro,at what one-year forward rate would an investor be indifferent between the U.S. and European investments?

Is it reasonable to expect real rates of interest to be identical across countries? Explain. What does this imply about parity?

Which of the following are likely to lead to an appreciation of the U.S. dollar (ceteris paribus)? I. Higher real U.S. interest rates II. Lower U.S. inflation III. Higher nominal U.S. interest rates

If interest rate parity holds and the annual German nominal interest rate is 3 percent and the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both countries,then inflation in Germany is about _______________ than in the United States.

If a foreign currency appreciates,that country's goods and services become relatively more expensive for U.S. buyers.

An FI's position in FX markets generally reflects four trading activities. What are they,and which one(s)cause the FI to bear FX risk?

If the United States has inflation of 3 percent and Europe has inflation of 5 percent,the value of the euro should increase,ceteris paribus.

If the dollar is initially worth 120 yen and then the exchange rate changes so that the dollar is now worth 115 yen,the value of the yen has depreciated.

The spot rate for the Argentine peso is $0.3600 per peso. Over the year,inflation in Argentina is 10 percent and U.S. inflation is 4 percent. If purchasing power parity holds,at year-end the exchange rate should be approximately ______________ dollars per peso.

In 1973,the Smithsonian Agreement II eliminated fixed exchange rates for the major economies.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

Exam 9: Foreign Exchange Markets

A U.S. firm has £50 million in assets in Britain that they need to repatriate in six months.

The agreement that ended the era of fixed exchange rates for the major economies was called the

A U.S. firm agrees to import textiles from Hong Kong and pay in 90 days. The invoice requires payment in Hong Kong dollars. The U.S. importer could hedge this currency risk by buying the HK dollar forward.

A British bank has borrowed dollars in the United States,but is now concerned about its currency risk. What alternatives does it have to limit its risk? Be specific.

You can buy or sell the yen spot at ¥102 to the dollar. You can buy or sell the yen one-year forward at ¥104 to the dollar. If U.S. annual interest rates are 4 percent,what must be the approximate one-year Japanese interest rate if interest rate parity holds?

What are the major differences between the interbank foreign exchange market and the foreign currency exchanges?

A European investor can earn a 4.75 percent annual interest rate in Europe or 2.75 percent per year in the United States. If the spot exchange rate is $1.58 per euro,at what one-year forward rate would an investor be indifferent between the U.S. and European investments?

Is it reasonable to expect real rates of interest to be identical across countries? Explain. What does this imply about parity?

Which of the following are likely to lead to an appreciation of the U.S. dollar (ceteris paribus)? I. Higher real U.S. interest rates II. Lower U.S. inflation III. Higher nominal U.S. interest rates

If interest rate parity holds and the annual German nominal interest rate is 3 percent and the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both countries,then inflation in Germany is about _______________ than in the United States.

If a foreign currency appreciates,that country's goods and services become relatively more expensive for U.S. buyers.

An FI's position in FX markets generally reflects four trading activities. What are they,and which one(s)cause the FI to bear FX risk?

If the United States has inflation of 3 percent and Europe has inflation of 5 percent,the value of the euro should increase,ceteris paribus.

If the dollar is initially worth 120 yen and then the exchange rate changes so that the dollar is now worth 115 yen,the value of the yen has depreciated.

The spot rate for the Argentine peso is $0.3600 per peso. Over the year,inflation in Argentina is 10 percent and U.S. inflation is 4 percent. If purchasing power parity holds,at year-end the exchange rate should be approximately ______________ dollars per peso.

In 1973,the Smithsonian Agreement II eliminated fixed exchange rates for the major economies.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters