International Economics Questions
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According to the international Fisher Effect, if an investor purchases a five−year U.S. bond that has an annual interest rate of 5% rather than a comparable British bond that has an annual interest rate of 6%, then the investor must be expecting the ________ to ________ at a rate of at least 1% per year over the next 5 years.A.British pound; appreciateB.British pound; revalueC.U.S. dollar; appreciateD.U.S. dollar; depreciate
The greatest amount of foreign exchange trading takes place in the following two cities:A.New York and London.B.London and Frankfurt.C.New York and Tokyo.D.London and Tokyo.
Assume a nominal interest rate on one−year U.S. Treasury Bills of 3.80% and a real rate of interest of 2.00%. Using the Fisher Effect Equation, what is the exact expected rate of inflation in the U.S. over the next year?A.1.84%B.1.80%C.1.76%D.1.72%
The theory of ________ states that the difference in the national interest rates for securities of similar risk and maturity should be equal to but opposite in sign to the forward rate discount or premium for the foreign currency, except for transaction costs.A.the law of one priceB.absolute PPPC.international Fisher EffectD.interest rate parity
While trading in foreign exchange takes place worldwide, the major currency trading centers are located in:A.Los Angeles, New York, and London.B.Paris, Frankfurt, and London.C.New York, Zurich, and Hong Kong.D.London, New York, Singapore, Hong Kong, and Tokyo.
If an identical product can be sold in two different markets, and no restrictions exist on the sale or transportation of product between markets, the product's price should be the same in both markets. This is known as:A.the law of one price..B.equilibrium.C.interest rate parity.D.relative purchasing power parity.
________ states that differential rates of inflation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate.A.The International Fisher EffectB.Relative Purchasing Power ParityC.Absolute Purchasing Power ParityD.The Fisher Effect
According to the Big Mac Index, the implied PPP exchange rate is Mexican peso 8.50/$1 but the actual exchange rate is peso 10.80/$1. Thus, at current exchange rates the peso appears to be ________ by ________.A.overvalued; approximately 21%B.undervalued; approximately 27%C.undervalued; approximately 21%D.overvalued; approximately 27%
The Economist publishes annually the "Big Mac Index" by which they compare the prices of the McDonald's Corporation's Big Mac hamburger around the world. The index estimates the exchange rates for currencies based on the assumption that the burgers in question are the same across the world and therefore, the price should be the same. If a Big Mac costs $2.54 in the United States and 294 yen in Japan, what is the estimated exchange rate of yen per dollar as hypothesized by the Hamburger index?A.$0.0086/¥B.¥124/$C.$0.0081/¥D.¥115.75/$
A ________ transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.A.futuresB.spotC.swapD.forward
Exchange rate pass−through may be defined as:A.the bid/ask spread on currency exchange rate transactions.B.the practice by Great Britain of maintaining the relative strength of the currencies of the Commonwealth countries under the current floating exchange rate regime.C.the PPP of lesser−developed countries.D.the degree to which the prices of imported and exported goods change as a result of exchange rate changes.
The primary motive of foreign exchange activities by most central banks is profit.TrueFalse
The top three currency pairs traded with the U.S. dollar are:A.Swiss franc, euro, Japanese yen.B.U.K. pound, Chinese Yuan, Japanese yen.C.euro, Chinese Yuan, Japanese yen.D.U.K. pound, euro, Japanese yen.
The ________ is a derivative forward contract that was created in the 1990s. It has the same characteristics and documentation requirements as traditional forward contracts except that they are only settled in U.S. dollars and the foreign currency involved in the transaction is not delivered.A.dollar only forwardB.nondeliverable forwardC.virtual forwardD.internet forward
The relationship between the percentage change in the spot exchange rate over time and the differential between comparable interest rates in different national capital markets is known as:A.the law of one price.B.the international Fisher Effect.C.relative PPP.D.absolute PPP.
A spot transaction in the interbank market for foreign exchange would typically involve a two−day delay in the actual delivery of the currencies, while such a transaction between a bank and its commercial customer would not necessarily involve a two−day wait.TrueFalse
A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency.A.import/export exchangeB.foreign exchange transaction.C.Eurodollar transactionD.interbank market transaction
You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?A.dollarizationB.an exchange rate pegged to the U.S. dollarC.an exchange rate with a fixed price per ounce of goldD.an internationally floating exchange rate
China today is a clear example of a nation that has chosen the following policies EXCEPT:A.restrict the flow of capital into and out of the country.B.conduct an independent monetary policy.C.control and manage the value of its currency.D.full financial integration in an attempt to stimulate its domestic economy.
In their approximate form, PPP, IRP, and forward rates as an unbiased predictor of the future spot rate lead to similar forecasts of the future spot rate.TrueFalse