Question 1

Which of the following would cause the nominal exchange rate to appreciate?

Accepted Answer

A)  The real exchange rate depreciates. 
B)  The domestic inflation rate decreases. 
C)  The domestic inflation rate increases. 
D)  The government budget deficit decreases. 
A)  The real exchange rate depreciates. 
B)  The domestic inflation rate decreases. 
C)  The domestic inflation rate increases. 
D)  The government budget deficit decreases.

Question 2

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

Accepted Answer

Options contracts have the advantage to

Question 3

Suppose that the one-year Treasury bill rate in the United States is 6%,the one-year government bond rate in Canada is 4%,and investors expect the U.S.dollar to depreciate against the Canadian dollar by 4% over the coming year.Is the nominal interest rate parity condition violated?

Accepted Answer

Not if investors have a prefer

Question 4

In forward transactions,

Accepted Answer

A)  the exchange takes place at the same exchange rate as in the spot market. 
B)  currencies are exchanged at a set date in the future. 
C)  currencies may only be exchanged at rates set by governments well in advance. 
D)  currency is bought and sold for delivery later that same day. 
A)  the exchange takes place at the same exchange rate as in the spot market. 
B)  currencies are exchanged at a set date in the future. 
C)  currencies may only be exchanged at rates set by governments well in advance. 
D)  currency is bought and sold for delivery later that same day.

Question 5

The relation between the nominal and real exchange rates is given by which of the following equations?

Accepted Answer

A)  EX = (EXr × P)/Pf 
B)  EXr = (EX × P)/Pf 
C)  EX = (EXr × Pf)/P 
D)  EXr = (EX × Pf)/P 
A)  EX = (EXr × P)/Pf 
B)  EXr = (EX × P)/Pf 
C)  EX = (EXr × Pf)/P 
D)  EXr = (EX × Pf)/P

Question 6

The theory of purchasing power parity assumes that

Accepted Answer

A)  movements in nominal exchange rates are the result of movements in relative price levels. 
B)  real exchange rates are volatile. 
C)  movements in nominal exchange rates are the result of movements in real exchange rates. 
D)  inflation rates are roughly the same in most countries. 
A)  movements in nominal exchange rates are the result of movements in relative price levels. 
B)  real exchange rates are volatile. 
C)  movements in nominal exchange rates are the result of movements in real exchange rates. 
D)  inflation rates are roughly the same in most countries.

Question 7

What would happen to the value of the dollar if prices in the U.S.increased more rapidly relative to prices in other countries?

Accepted Answer

The value of the dollar will d

Question 8

What is a dollar liquidity swap line?

Accepted Answer

A dollar swap line allows the

Question 9

Suppose the exchange rate is 10 pesos per dollar and you use $1000 to purchase a one-year Mexican bond that pays 10% interest.Next year,the exchange rate is 11 pesos per dollar.Assuming you convert your funds back to U.S.dollars,how much money will you have in one year?

Accepted Answer

A)  $1000 
B)  $1100 
C)  $91 
D)  $0 
A)  $1000 
B)  $1100 
C)  $91 
D)  $0

Question 10

A tariff is a

Accepted Answer

A)  limit on the volume of foreign goods that can be brought into the country. 
B)  tax on goods purchased from other countries. 
C)  tax on goods exported to other countries. 
D)  subsidy by governments to firms that produce goods for export to other countries. 
A)  limit on the volume of foreign goods that can be brought into the country. 
B)  tax on goods purchased from other countries. 
C)  tax on goods exported to other countries. 
D)  subsidy by governments to firms that produce goods for export to other countries.

Question 11

Which of the following is an advantage of hedging with options instead of forward contracts?

Accepted Answer

A)  Options prices tend to be lower than forward prices. 
B)  If the price moves in the opposite direction to the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. 
C)  If the price moves in the direction of the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. 
D)  Options allow investors to purchase a forward contract at a later date. 
A)  Options prices tend to be lower than forward prices. 
B)  If the price moves in the opposite direction to the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. 
C)  If the price moves in the direction of the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. 
D)  Options allow investors to purchase a forward contract at a later date.

Question 12

An exporter can hedge against the possible decline in a foreign currency by purchasing

Accepted Answer

A)  put options on the currency. 
B)  call options on the currency. 
C)  the currency on the spot market. 
D)  currency on forward contracts. 
A)  put options on the currency. 
B)  call options on the currency. 
C)  the currency on the spot market. 
D)  currency on forward contracts.

Question 13

If pepperoni pizzas sell for $10 in Berkeley,California,and £10 in London,England,and the exchange rate is $1.35 = £1,

Accepted Answer

A)  the law of one price has been violated. 
B)  either the British government or the American government must be interfering with the market determination of the exchange rate. 
C)  the value of the dollar versus the pound is likely to rise. 
D)  there is no contradiction in the information given because pizza is not a tradeable good. 
A)  the law of one price has been violated. 
B)  either the British government or the American government must be interfering with the market determination of the exchange rate. 
C)  the value of the dollar versus the pound is likely to rise. 
D)  there is no contradiction in the information given because pizza is not a tradeable good.

Question 14

Which of the following is NOT true of the foreign-exchange market?

Accepted Answer

A)  It is an over-the-counter market. 
B)  Most foreign-exchange trading takes place in London. 
C)  The busiest trading time is morning east coast time, when markets in New York and London are both open. 
D)  Trading volume worldwide exceeds $1 trillion per day. 
A)  It is an over-the-counter market. 
B)  Most foreign-exchange trading takes place in London. 
C)  The busiest trading time is morning east coast time, when markets in New York and London are both open. 
D)  Trading volume worldwide exceeds $1 trillion per day.

Question 15

About what percentage of U.S.output was exported to foreigners in 2010?

Accepted Answer

A)  1% 
B)  12% 
C)  11225% 
D)  25% 
A)  1% 
B)  12% 
C)  11225% 
D)  25%

Question 16

Purchasing power parity's assumption that the real exchange is constant

Accepted Answer

A)  is correct in nearly all instances. 
B)  would be correct were it not for the existence of trade barriers. 
C)  is not reasonable. 
D)  is correct for trade between the United States and Japan, but incorrect in most other bilateral trading relations. 
A)  is correct in nearly all instances. 
B)  would be correct were it not for the existence of trade barriers. 
C)  is not reasonable. 
D)  is correct for trade between the United States and Japan, but incorrect in most other bilateral trading relations.

Question 17

Suppose that investor's perceive a higher risk of investing in Europe as a result of a sovereign debt crisis.Make use of a graph of the foreign exchange market to show how this will affect the value of the euro.

Accepted Answer

There will be reduce

Question 18

International capital mobility refers to

Accepted Answer

A)  the ease with which manufacturing equipment can be transported across countries. 
B)  the ease with cash may be transferred from one country to another without having to be converted into a foreign currency. 
C)  the ease with which investors move funds among international financial markets. 
D)  the ease with which exchange rates may be adjusted to reflect changes in the relative economic strengths of countries. 
A)  the ease with which manufacturing equipment can be transported across countries. 
B)  the ease with cash may be transferred from one country to another without having to be converted into a foreign currency. 
C)  the ease with which investors move funds among international financial markets. 
D)  the ease with which exchange rates may be adjusted to reflect changes in the relative economic strengths of countries.

Question 19

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate,

Accepted Answer

A)  inflation must be lower in the United States than in Britain. 
B)  inflation must be higher in the United States than in Britain. 
C)  market participants must be expecting the dollar to appreciate against the pound. 
D)  market participants must be expecting the dollar to depreciate against the pound. 
A)  inflation must be lower in the United States than in Britain. 
B)  inflation must be higher in the United States than in Britain. 
C)  market participants must be expecting the dollar to appreciate against the pound. 
D)  market participants must be expecting the dollar to depreciate against the pound.

Question 20

Which of the following has the largest impact on short-run movements in exchange rates?

Accepted Answer

A)  growth rate of exports 
B)  growth rate of imports 
C)  investment opportunities 
D)  changes in the trade deficit 
A)  growth rate of exports 
B)  growth rate of imports 
C)  investment opportunities 
D)  changes in the trade deficit

Which of the following would cause the nominal exchange rate to appreciate?

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

Suppose that the one-year Treasury bill rate in the United States is 6%,the one-year government bond rate in Canada is 4%,and investors expect the U.S.dollar to depreciate against the Canadian dollar by 4% over the coming year.Is the nominal interest rate parity condition violated?

In forward transactions,

The relation between the nominal and real exchange rates is given by which of the following equations?

The theory of purchasing power parity assumes that

What would happen to the value of the dollar if prices in the U.S.increased more rapidly relative to prices in other countries?

What is a dollar liquidity swap line?

Suppose the exchange rate is 10 pesos per dollar and you use $1000 to purchase a one-year Mexican bond that pays 10% interest.Next year,the exchange rate is 11 pesos per dollar.Assuming you convert your funds back to U.S.dollars,how much money will you have in one year?

A tariff is a

Which of the following is an advantage of hedging with options instead of forward contracts?

An exporter can hedge against the possible decline in a foreign currency by purchasing

If pepperoni pizzas sell for $10 in Berkeley,California,and £10 in London,England,and the exchange rate is $1.35 = £1,

Which of the following is NOT true of the foreign-exchange market?

About what percentage of U.S.output was exported to foreigners in 2010?

Purchasing power parity's assumption that the real exchange is constant

Suppose that investor's perceive a higher risk of investing in Europe as a result of a sovereign debt crisis.Make use of a graph of the foreign exchange market to show how this will affect the value of the euro.

International capital mobility refers to

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate,

Which of the following has the largest impact on short-run movements in exchange rates?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 8: The Market for Foreign Exchange

Which of the following would cause the nominal exchange rate to appreciate?

What is an advantage of using options instead of forward contracts when hedging against exchange-rate risk?

Suppose that the one-year Treasury bill rate in the United States is 6%,the one-year government bond rate in Canada is 4%,and investors expect the U.S.dollar to depreciate against the Canadian dollar by 4% over the coming year.Is the nominal interest rate parity condition violated?

In forward transactions,

The relation between the nominal and real exchange rates is given by which of the following equations?

The theory of purchasing power parity assumes that

What would happen to the value of the dollar if prices in the U.S.increased more rapidly relative to prices in other countries?

What is a dollar liquidity swap line?

Suppose the exchange rate is 10 pesos per dollar and you use $1000 to purchase a one-year Mexican bond that pays 10% interest.Next year,the exchange rate is 11 pesos per dollar.Assuming you convert your funds back to U.S.dollars,how much money will you have in one year?

A tariff is a

Which of the following is an advantage of hedging with options instead of forward contracts?

An exporter can hedge against the possible decline in a foreign currency by purchasing

If pepperoni pizzas sell for $10 in Berkeley,California,and £10 in London,England,and the exchange rate is $1.35 = £1,

Which of the following is NOT true of the foreign-exchange market?

About what percentage of U.S.output was exported to foreigners in 2010?

Purchasing power parity's assumption that the real exchange is constant

Suppose that investor's perceive a higher risk of investing in Europe as a result of a sovereign debt crisis.Make use of a graph of the foreign exchange market to show how this will affect the value of the euro.

International capital mobility refers to

If the forward exchange rate of the dollar in terms of pounds is less than the spot exchange rate,

Which of the following has the largest impact on short-run movements in exchange rates?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters