Chapter 8 Quiz example #16103

Which market is used to make? foreign-exchange transactions that are to occur sometime in the? future? Global equity market Eurocurrency market Spot market Forward market

Eurodollars came about when 1. Communist nations in Eastern Europe found American banks willing to hold accounts for them in US dollars 2. Middle Eastern oil producers moved their petrodollars from European banks to their domestic banks 3. Communist nations in Eastern Europe found European banks willing to hold accounts for them in US dollars 4. Middle Eastern oil producers moved their petrodollars from their domestic banks to European banks

Why do U.S. firms use places like the Bahamas as offshore financial? centers? 1. It is more heavily? regulated, allowing investors to feel safe 2. It is less heavily? taxed, providing a greater profit 3. It is more secure than the? U.S., and less embezzlement occurs 4. It is easier to set up transfers for foreign investors

You work at a bank that performs services for a British bank in the United States. What is this? called? Commercial relationship Correspondent relationship International operation Overseas operation

Almost _____% of all forex transactions involve the U.S. dollar. This pre-eminence stems from __________. 90; U.S. dominance of the Bretton Woods System 90; U.S. political manipulation 80; U.S. dominance of the Bretton Woods System 80; U.S. political manipulation

Suppose your company imports hand-made leather handbags and shoes from Italy. You prefer a weak dollar against the lira a strong dollar against the lira a strong dollar against the euro a weak dollar against the euro

According to the International Fisher Effect, if a country's inflation rate is expected to fall, the forward discount will shrink, then widen widen, then shrink widen shrink

According to the International Fisher Effect, if the forward discount on a country's currency is shrinking, this must mean that 1. the country's nominal interest rate is rising because the country's inflation rate is expected to rise 2. the country's nominal interest rate is falling because the country's inflation rate is expected to fall 3. the country's nominal interest rate is rising because the country's inflation rate is expected to fall 4. the country's nominal interest rate is falling because the country's inflation rate is expected to rise

Assume we are comparing the ? and the $. Suppose the annualized forward premium on the ? = 50%, the forward price of the ? = 0.90, and we are calculating the AFP based on the 3-month forward price. What is the spot price of the ?? (Answer may or may not be approximate.) 0.77 0.80 1.0125 1.053

Assume we are comparing the € and $. Suppose: the spot price of the € is € = $1.30; the forward price of the € is € = $1.25, and we are using the three-month forward price. Then we have an _______. (Answer may or may not be approximate.) annualized forward discount of 15.4% annualized forward premium of 16% annualized forward discount of 11.5% annualized forward premium of 12%

The indirect exchange rate between the U.S. dollar and the Indian rupee is R44.27/$1. What is the direct exchange rate? $1/R44.27 R1/$44.27 $0.02259/R1 R0.02259/$1

Suppose: ?1 buys €1.50 in NY, Tokyo, and London €1 buys $1.50 in NY, Tokyo, and London ?1 buys $1.50 in NY, Tokyo, and London Is there an opportunity for two-point arbitrage? Yes, because the direct rates differ in all markets No, because the direct rates differ in all markets Yes, because the direct rates are the same in all markets No, because the direct rates are the same in all markets

Suppose: €1 buys $1.10 in NY, Tokyo, and London ?1 buys $1.05 in NY, Tokyo, and London ?1 buys €0.90 in NY, Tokyo, and London Which of the following statements is true? 1. The cross rate and direct quote are the same, so there is no opportunity for three-point arbitrage 2. The cross rate and direct quote differ, so there is an opportunity for three-point arbitrage 3. The cross rate and direct quote are the same, so there is an opportunity for three-point arbitrage 4. The cross rate and direct quote differ, so there is no opportunity for three-point arbitrage

Your employer has significant liabilities in €. After analyzing the forex market, you conclude that the € is selling at a forward premium. As a result, you should recommend that your company 1. increase its liabilities in € 2. make no changes in its holdings 3. decrease its liabilities in € 4. wait until the € rises more before acting

Corporation A is an international company with business operations in Canada, the U.K., and Australia. The firm believes that the Canadian dollar will increase in value in the future and that pound will decrease in value in the future. In order to take advantage of this situation, what should Corporation A do? 1. Increase their holdings of assets in the Canadian dollar and decrease their holdings of liabilities in the pound 2. Decrease their holdings of liabilities in the Canadian dollar and increase their holdings of assets in the pound 3. Decrease their holdings of assets in the Canadian dollar and increase their holdings of assets in the pound 4. Increase their holdings of assets in the Canadian dollar and decrease their holdings of assets in the pound

Assume that the U.S./Canada exchange rate is US$0.80 = Can$1; jeans sell for US$48 in the U.S. and Can$60 in Canada. Does PPP exist? yes no