国际金融英文版试题chapter5

INTERNATIONAL FINANCE

Assignment Problems (5) Name: Student#:

I. Choose the correct answer for the following questions (only correct answer) (3

credits for each question, total credits 3 x 20 = 60)

1. When the supply of and demand for a foreign exchange in the foreign exchange

market are exactly the same, the exchange rate is the __________.

A. real exchange rate

B. effective exchange rate

C. equilibrium exchange rate

D. cross exchange rate

2. An increase in the demand for French goods and services will __________.

A. induce a rightward shift in the demand for euro

B. induce a leftward shift in the demand for euro

C. result in a rightward movement along the demand curve for euro

D. result in a leftward movement along the demand curve for euro

3. If U.S. demand for Japanese goods increases and Japan’s demand for U.S. products also rises at the same time, which of the following can you conclude in this situation?

A. The U.S. dollar will appreciate against the yen.

B. The U.S. dollar will depreciate against the yen.

C. The U.S. dollar will not change relative to the yen.

D. The U.S. dollar may appreciate, depreciate, or remain unchanged against the

yen.

4. If the price of a pair of Nike sneakers costs $85 in U.S, and the price of the same

sneakers is ?80 in Paris, the spot rate is $1.35 per euro, the euro __________.

A. is correctly valued according to PPP

B. is correctly valued according to relative PPP

C. is undervalued according to PPP

D. is overvalued according to PPP

5. If the expected exchange rate E (SB/A) according to the relative purchasing power

parity is lower than the spot exchange rate (SB/A), we may conclude that

__________.

A. country B is expected to run huge BOP surplus with country A

B. country A’s interest rate is going to be lower than that of country B’ｓ

C. the expected inflation rate in country A is higher than the expected inflation rate in

country B

D. the expected inflation rate in country A is lower than the expected inflation rate in

country B

6. Assume that PPP holds in the long run. If the price of a tradable good is $20 in the

U.S. and 100 pesos in Mexico; and the exchange rate is 7 pesos/$ right now, which of

the following changes might we expect in the future?

A. an increase in the price of the good in the U.S

B. a decrease in the price of the good in Mexico

C. an appreciation of the peso in nominal terms

D. a depreciation of the peso in nominal terms

7. Which basket of goods would be most likely to exhibit absolute purchasing power

parity?

A. Highly tradable commodities, such as wheat

B. The goods in the Consumer Price index

C. Specialized luxury goods, which are subject to different tax rates across countries

D. Locally produced goods, such as transportation services, which are not easily

traded

8. The absolute purchasing power parity says that the exchange rate between the two

currencies should be determined by the __________ .

A. relative inflation rate of the two currencies

B. relative price level of the two countries

C. relative interest rate of the two currencies

D. relative money supply of the two countries

9. According to the relative PPP, if country A’s inflation rate is higher than country B inflation rate by 3%, __________.

A. country A’s currency should depreciate against country B’s currency by 3%

B. country A’s currency should appreciate against country B’s currency by 3%

C. it is hard to say whether country A’s currency should appreciate or depreciate

against country B’s currency. The exchange rate is influenced by many factors

D. none of the above is true

10. If the law of one price holds for a particular good, we may conclude that

__________.

A. there is no trade barriers for the good among the different nations

B. the price of the good is the same ignoring the other expenses

C. arbitrage for the good does not exist

D. all of the above are true

11. An investor borrows money in one market, sells the borrowed money on the spot

market, invests the proceeds of the sale in another place and simultaneously buys back

the borrowed currency on the forward market. This is called __________.

A. uncovered interest arbitrage

B. covered interest arbitrage

C. triangular arbitrage

D. spatial arbitrage

12. Real return equalization across countries on similar financial instruments is called __________.

A. interest rate parity

B. uncovered interest parity

C. forward parity

D. real interest parity

13. In which of the following situations would a speculator wish to sell foreign currency on the forward market?

14. According to IRP, if the interest rate in country A is higher than that in country B, the forward exchange rate, defined as F1A/B is expected to be __________.

A. lower than the spot rate S0A/B

B. the same as the spot rate S0A/B

C. higher than the spot rate S0A/B

D. necessary the same as the future spot rate S1A/B

15. For arbitrage opportunities to be practicable, __________.

A. arbitragers must have instant access to quotes

B. arbitragers must have instant access to executions

C. arbitragers must be able to execute the transactions without an initial sum of money relying on their bank’s credit standing

D. All of the above must be true.

16. The __________ states that the forward exchange rate quoted at time 0 for delivery at time t is equal to what the spot rate is expected to be at time t.

A. interest rate parity

B. uncovered interest parity

C. forward parity

D. real interest parity

17. Assume expected value of the U.S. dollar in the future is lower than that now compared to the value of the Japanese yen. The U.S. inflation rate must be higher than according to __________.

Japan’s inflation rate

A. relative PPP

B. Fisher equation

C. International Fisher relation

D. IRP