国际金融学练习题：Lecture 6

Lecture6(Chapter6)InternationalParityRelationshipsandForecastingForeignExchangeRates

MultipleChoiceQuestions

1.

Anarbitrageisbestdefinedas

A.

AlegalconditionimposedbytheCFTC.

B.

Theactofsimultaneouslybuyingandsellingthesameorequivalentassetsorcommoditiesforthepurposeofmakingreasonableprofits.

C.

Theactofsimultaneouslybuyingandsellingthesameorequivalentassetsorcommoditiesforthepurposeofmakingguaranteedprofits.

D.

Noneoftheabove

2.

InterestRateParity(IRP)isbestdefinedas

A.

Whenagovernmentbringsitsdomesticinterestrateinlinewithothermajorfinancialmarkets.

B.

Whenthecentralbankofacountrybringsitsdomesticinterestrateinlinewithitsmajortradingpartners.

C.

Anarbitrageconditionthatmustholdwheninternationalfinancialmarketsareinequilibrium.

D.

Noneoftheabove

3.

WhenInterestRateParity(IRP)doesnothold

A.

thereisusuallyahighdegreeofinflationinatleastonecountry.

B.

thefinancialmarketsareinequilibrium.

C.

thereareopportunitiesforcoveredinterestarbitrage.

D.

bothb)andc)

4.

Supposeyouobserveaspotexchangerateof$1.50/€.Ifinterestratesare5%APRintheU.S.and3%APRintheeurozone,whatistheno-arbitrage1-yearforwardrate?

A.

€1.5291/$

B.

$1.5291/€

C.

€1.4714/$

D.

$1.4714/€

5.

Supposeyouobserveaspotexchangerateof$1.50/€.Ifinterestratesare3%APRintheU.S.and5%APRintheeurozone,whatistheno-arbitrage1-yearforwardrate?

A.

€1.5291/$

B.

$1.5291/€

C.

€1.4714/$

D.

$1.4714/€

6.

Supposeyouobserveaspotexchangerateof$2.00/£.Ifinterestratesare5%APRintheU.S.and2%APRintheU.K.,whatistheno-arbitrage1-yearforwardrate?

A.

£2.0588/$

B.

$2.0588/£

C.

£1.9429/$

D.

$1.9429/£

7.

AformalstatementofIRPis

A.

B.

C.

D.

8.

Supposethattheone-yearinterestrateis5.0percentintheUnitedStates;thespotexchangerateis$1.20/€;andtheone-yearforwardexchangerateis$1.16/€.Whatmustone-yearinterestratebeintheeurozonetoavoidarbitrage?

A.

5.0%

B.

6.09%

C.

8.62%

D.

Noneoftheabove

9.

Supposethattheone-yearinterestrateis3.0percentintheItaly,thespotexchangerateis$1.20/€,andtheone-yearforwardexchangerateis$1.18/€.Whatmustone-yearinterestratebeintheUnitedStates?

A.

1.2833%

B.

1.0128%

C.

4.75%

D.

Noneoftheabove

10.

Supposethattheone-yearinterestrateis4.0percentintheItaly,thespotexchangerateis$1.60/€,andtheone-yearforwardexchangerateis$1.58/€.Whatmustone-yearinterestratebeintheUnitedStates?

A.

2%

B.

2.7%

C.

5.32%

D.

Noneoftheabove

11.

CoveredInterestArbitrage(CIA)activitieswillresultin

A.

anunstableinternationalfinancialmarkets.

B.

restoringequilibriumquitequickly.

C.

adisintermediation.

D.

noeffectonthemarket.

12.

Supposethattheone-yearinterestrateis5.0percentintheUnitedStatesand3.5percentinGermany,andthatthespotexchangerateis$1.12/€andtheone-yearforwardexchangerate,is$1.16/€.Assumethatanarbitrageurcanborrowupto$1,000,000.

A.

Thisisanexamplewhereinterestrateparityholds.

B.

Thisisanexampleofanarbitrageopportunity;interestrateparitydoesNOThold.

C.

ThisisanexampleofaPurchasingPowerParityviolationandanarbitrageopportunity.

D.

Noneoftheabove

13.

SupposethatyouarethetreasurerofIBMwithanextraUS$1,000,000toinvestforsixmonths.YouareconsideringthepurchaseofU.S.T-billsthatyield1.810%(that'sasixmonthrate,notanannualratebytheway)andhaveamaturityof26weeks.Thespotexchangerateis$1.00=¥100,andthesixmonthforwardrateis$1.00=¥110.TheinterestrateinJapan(onaninvestmentofcomparablerisk)is13percent.Whatisyourstrategy?

A.

Take$1m,investinU.S.T-bills.

B.

Take$1m,translateintoyenatthespot,investinJapan,andrepatriateyouryenearningsbackintodollarsatthespotrateprevailinginsixmonths.

C.

Take$1m,translateintoyenatthespot,investinJapan,hedgewithashortpositionintheforwardcontract.

D.

Take$1m,translateintoyenattheforwardrate,investinJapan,hedgewithashortpositioninthespotcontract.

14.

Supposethattheannualinterestrateis2.0percentintheUnitedStatesand4percentinGermany,andthatthespotexchangerateis$1.60/€andtheforwardexchangerate,withone-yearmaturity,is$1.58/€.Assumethatanarbitragercanborrowupto$1,000,000or€625,000.Ifanastutetraderfindsanarbitrage,whatisthenetcashflowinoneyear?

A.

$238.65

B.

$14,000

C.

$46,207

D.

$7,000

15.

Acurrencydealerhasgoodcreditandcanborroweither$1,000,000or€800,000foroneyear.Theone-yearinterestrateintheU.S.isi$=2%andintheeurozonetheone-yearinterestrateisi€=6%.Thespotexchangerateis$1.25=€1.00andtheone-yearforwardexchangerateis$1.20=€1.00.Showhowtorealizeacertainprofitviacoveredinterestarbitrage.

A.

Borrow$1,000,000at2%.Trade$1,000,000for€800,000;investati€=6%;translateproceedsbackatforwardrateof$1.20=€1.00,grossproceeds=$1,017,600.

B.

Borrow€800,000ati€=6%;translatetodollarsatthespot,investintheU.S.ati$=2%foroneyear;translate€848,000backintoeuroattheforwardrateof$1.20=€1.00.Netprofit$2,400.

C.

Borrow€800,000ati€=6%;translatetodollarsatthespot,investintheU.S.ati$=2%foroneyear;translate€850,000backintoeuroattheforwardrateof$1.20=€1.00.Netprofit€2,000.

D.

Bothc)andb)

16.

Supposethattheannualinterestrateis5.0percentintheUnitedStatesand3.5percentinGermany,andthatthespotexchangerateis$1.12/€andtheforwardexchangerate,withone-yearmaturity,is$1.16/€.Assumethatanarbitragercanborrowupto$1,000,000.Ifanastutetraderfindsanarbitrage,whatisthenetcashflowinoneyear?

A.

$10,690

B.

$15,000

C.

$46,207

D.

$21,964.29

17.

AU.S.-basedcurrencydealerhasgoodcreditandcanborrow$1,000,000foroneyear.Theone-yearinterestrateintheU.S.isi$=2%andintheeurozonetheone-yearinterestrateisi€=6%.Thespotexchangerateis$1.25=€1.00andtheone-yearforwardexchangerateis$1.20=€1.00.Showhowtorealizeacertaindollarprofitviacoveredinterestarbitrage.

A.

Borrow$1,000,000at2%.Trade$1,000,000for€800,000;investati€=6%;translateproceedsbackatforwardrateof$1.20=€1.00,grossproceeds=$1,017,600.

B.

Borrow€800,000ati€=6%;translatetodollarsatthespot,investintheU.S.ati$=2%foroneyear;translate€848,000backintoeuroattheforwardrateof$1.20=€1.00.Netprofit$2,400.

C.

Borrow€800,000ati€=6%;translatetodollarsatthespot,investintheU.S.ati$=2%foroneyear;translate€850,000backintoeuroattheforwardrateof$1.20=€1.00.Netprofit€2,000.

D.

Bothc)andb)

18.

AnItaliancurrencydealerhasgoodcreditandcanborrow€800,000foroneyear.Theone-yearinterestrateintheU.S.isi$=2%andintheeurozonetheone-yearinterestrateisi€=6%.Thespotexchangerateis$1.25=€1.00andtheone-yearforwardexchangerateis$1.20=€1.00.Showhowtorealizeacertaineuro-denominatedprofitviacoveredinterestarbitrage.

A.

Borrow$1,000,000at2%.Trade$1,000,000for€800,000;investati€=6%;translateproceedsbackatforwardrateof$1.20=€1.00,grossproceeds=$1,017,600.

B.

Borrow€800,000ati€=6%;translatetodollarsatthespot,investintheU.S.ati$=2%foroneyear;translate€848,000backintoeuroattheforwardrateof$1.20=€1.00.Netprofit$2,400.

C.

Borrow€800,000ati€=6%;translatetodollarsatthespot,investintheU.S.ati$=2%foroneyear;translate€850,000backintoeuroattheforwardrateof$1.20=€1.00.Netprofit€2,000.

D.

Bothc)andb)

19.

SupposethatyouarethetreasurerofIBMwithanextraUS$1,000,000toinvestforsixmonths.YouareconsideringthepurchaseofU.S.T-billsthatyield1.810%(that'sasixmonthrate,notanannualratebytheway)andhaveamaturityof26weeks.Thespotexchangerateis$1.00=¥100,andthesixmonthforwardrateis$1.00=¥110.WhatmusttheinterestrateinJapan(onaninvestmentofcomparablerisk)bebeforeyouarewillingtoconsiderinvestingthereforsixmonths?

A.

11.991%

B.

1.12%

C.

7.45%

D.

-7.45%

20.

HowhighdoesthelendingrateintheeurozonehavetobebeforeanarbitrageurwouldNOTconsiderborrowingdollars,tradingforeuroatthespot,investingintheeurozoneandhedgingwithashortpositionintheforwardcontract?

A.

Thebid-askspreadsaretoowideforanyprofitablearbitragewheni€>0

B.

3.48%

C.

-2.09%

D.

Noneoftheabove

21.

Supposethattheone-yearinterestrateis5.0percentintheUnitedStatesand3.5percentinGermany,andtheone-yearforwardexchangerateis$1.16/€.Whatmustthespotexchangeratebe?

A.

$1.1768/€

B.

$1.1434/€

C.

$1.12/€

D.

Noneoftheabove

22.

AhigherU.S.interestrate(i$)willresultin

A.

astrongerdollar.

B.

alowerspotexchangerate(expressedasforeigncurrencyperU.S.dollar).

C.

botha)andb)

D.

noneoftheabove

23.

IftheinterestrateintheU.S.isi$=5percentforthenextyearandinterestrateintheU.K.isi£=8percentforthenextyear,uncoveredIRPsuggeststhat

A.

thepoundisexpectedtodepreciateagainstthedollarbyabout3percent.

B.

thepoundisexpectedtoappreciateagainstthedollarbyabout3percent.

C.

thedollarisexpectedtoappreciateagainstthepoundbyabout3percent.

D.

botha)andc)

24.

Acurrencydealerhasgoodcreditandcanborroweither$1,000,000or€800,000foroneyear.Theone-yearinterestrateintheU.S.isi$=2%andintheeurozonetheone-yearinterestrateisi€=6%.Theone-yearforwardexchangerateis$1.20=€1.00;whatmustthespotratebetoeliminatearbitrageopportunities?

A.

$1.2471=€1.00

B.

$1.20=€1.00

C.

$1.1547=€1.00

D.

noneoftheabove

25.

Willanarbitrageurfacingthefollowingpricesbeabletomakemoney?

A.

Yes,borrow$1,000at5%;Tradefor€attheaskspotrate$1.01=€1.00;Invest€990.10at5.5%;Hedgethiswithaforwardcontracton€1,044.55at$0.99=€1.00;Receive$1.034.11.

B.

Yes,borrow€1,000at6%;Tradefor$atthebidspotrate$1.00=€1.00;Invest$1,000at4.5%;Hedgethiswithaforwardcontracton€1,045at$1.00=€1.00.

C.

No;thetransactionscostsaretoohigh.

D.

Noneoftheabove

26.

IfIRPfailstohold

A.

pressurefromarbitrageursshouldbringexchangeratesandinterestratesbackintoline.

B.

itmayfailtoholdduetotransactionscosts.

C.

itmaybeduetogovernment-imposedcapitalcontrols.

D.

alloftheabove

27.

AlthoughIRPtendstohold,itmaynotholdpreciselyallthetime

A.

duetotransactionscosts,likethebidaskspread.

B.

duetoasymmetricinformation.

C.

duetocapitalcontrolsimposedbygovernments.

D.

botha)andc)

28.

Considerabankdealerwhofacesthefollowingspotratesandinterestrates.Whatshouldhesethis1-yearforwardaskpriceat?

A.

$1.4324/€

B.

$1.4358/€

C.

$1.4662/€

D.

$1.4676/€

29.

Considerabankdealerwhofacesthefollowingspotratesandinterestrates.Whatshouldhesethis1-yearforwardbidpriceat?

A.

$1.4324/€

B.

$1.4358/€

C.

$1.4662/€

D.

$1.4676/€

30.

Willanarbitrageurfacingthefollowingpricesbeabletomakemoney?

A.

Yes,borrow€1,000,000at3.65%;Tradefor$atthebidspotrate$1.40=€1.00;Investat4.1%;Hedgethiswithalongpositioninaforwardcontract.

B.

Yes,borrow$1,000,000at4.2%;Tradefor€atthespotaskexchangerate$1.43=€1.00;Invest€699,300.70at3.5%;HedgethisbygoingSHORTinforward(agreetosell€@BIDpriceof$1.44/€inoneyear).Cashflowin1year$237.76.

C.

No;thetransactionscostsaretoohigh.

D.

Noneoftheabove

31.

Ifaforeigncountyexperiencesahyperinflation,

A.

itscurrencywilldepreciateagainststablecurrencies.

B.

itscurrencymayappreciateagainststablecurrencies.

C.

itscurrencymaybeunaffected—it'sdifficulttosay.

D.

noneoftheabove

32.

Asoftoday,thespotexchangerateis€1.00=$1.25andtheratesofinflationexpectedtoprevailforthenextyearintheU.S.is2%and3%intheeurozone.Whatistheone-yearforwardratethatshouldprevail?

A.

€1.00=$1.2379

B.

€1.00=$1.2623

C.

€1.00=$0.9903

D.

$1.00=€1.2623

33.

PurchasingPowerParity(PPP)theorystatesthat

A.

theexchangeratebetweencurrenciesoftwocountriesshouldbeequaltotheratioofthecountries'pricelevels.

B.

asthepurchasingpowerofacurrencysharplydeclines(duetohyperinflation)thatcurrencywilldepreciateagainststablecurrencies.

C.

thepricesofstandardcommoditybasketsintwocountriesarenotrelated.

D.

botha)andb)

34.

Asoftoday,thespotexchangerateis€1.00=$1.60andtheratesofinflationexpectedtoprevailforthenextyearintheU.S.is2%and3%intheeurozone.Whatistheone-yearforwardratethatshouldprevail?

A.

€1.00=$1.6157

B.

€1.6157=$1.00

C.

€1.00=$1.5845

D.

$1.001.03=€1.601.02

35.

Iftheannualinflationrateis5.5percentintheUnitedStatesand4percentintheU.K.,andthedollardepreciatedagainstthepoundby3percent,thentherealexchangerate,assumingthatPPPinitiallyheld,is

A.

0.07

B.

0.9849

C.

-0.0198

D.

4.5

36.

Iftheannualinflationrateis2.5percentintheUnitedStatesand4percentintheU.K.,andthedollarappreciatedagainstthepoundby1.5percent,thentherealexchangerate,assumingthatPPPinitiallyheld,is_____.

A.

parity

B.

0.9710

C.

-0.0198

D.

4.5

37.

InviewofthefactthatPPPisthemanifestationofthelawofonepriceappliedtoastandardcommoditybasket,

A.

itwillholdonlyifthepricesoftheconstituentcommoditiesareequalizedacrosscountriesinagivencurrency.

B.

itwillholdonlyifthecompositionoftheconsumptionbasketisthesameacrosscountries.

C.

botha)andb)

D.

noneoftheabove

38.

Somecommoditiesneverenterintointernationaltrade.Examplesinclude

A.

nontradables.

B.

haircuts.

C.

housing.

D.

alloftheabove

39.

GenerallyunfavorableevidenceonPPPsuggeststhat

A.

substantialbarrierstointernationalcommodityarbitrageexist.

B.

tariffsandquotasimposedoninternationaltradecanexplainatleastsomeoftheevidence.

C.

shippingcostscanmakeitdifficulttodirectlycomparecommodityprices.

D.

alloftheabove

40.

ThepriceofaMcDonald'sBigMacsandwich

A.

isaboutthesameinthe120countriesthatMcDonaldsdoesbusinessin.

B.

variesconsiderablyacrosstheworldindollarterms.

C.

supportsPPP.

D.

noneoftheabove.

41.

TheFishereffectcanbewrittenfortheUnitedStatesas:

A.

B.

C.

D.

42.

Forwardparitystatesthat

A.

anyforwardpremiumordiscountisequaltotheexpectedchangeintheexchangerate.

B.

anyforwardpremiumordiscountisequaltotheactualchangeintheexchangerate.

C.

thenominalinterestratedifferentialreflectstheexpectedchangeintheexchangerate.

D.

anincrease(decrease)intheexpectedinflationrateinacountrywillcauseaproportionateincrease(decrease)intheinterestrateinthecountry.

43.

TheInternationalFisherEffectsuggeststhat

A.

anyforwardpremiumordiscountisequaltotheexpectedchangeintheexchangerate.

B.

anyforwardpremiumordiscountisequaltotheactualchangeintheexchangerate

C.

thenominalinterestratedifferentialreflectstheexpectedchangeintheexchangerate.

D.

anincrease(decrease)intheexpectedinflationrateinacountrywillcauseaproportionateincrease(decrease)intheinterestrateinthecountry.

44.

TheFishereffectstatesthat

A.

anyforwardpremiumordiscountisequaltotheexpectedchangeintheexchangerate.

B.

anyforwardpremiumordiscountisequaltotheactualchangeintheexchangerate.

C.

thenominalinterestratedifferentialreflectstheexpectedchangeintheexchangerate.

D.

anincrease(decrease)intheexpectedinflationrateinacountrywillcauseaproportionateincrease(decrease)intheinterestrateinthecountry.

45.

Ifyoucouldaccuratelyandconsistentlyforecastexchangerates

A.

thiswouldbeaveryhandythingasgirlspreferguyswithskills.

B.

youcouldimpressyourdates.

C.

youcouldmakeagreatdealofmoney.

D.

alloftheabove

46.

Themainapproachestoforecastingexchangeratesare

A.

Efficientmarket,Fundamental,andTechnicalapproaches.

B.

EfficientmarketandTechnicalapproaches.

C.

EfficientmarketandFundamentalapproaches.

D.

FundamentalandTechnicalapproaches.

47.

Thebenefittoforecastingexchangerates

A.

aregreatestduringperiodsoffixedexchangerates.

B.

arenonexistentnowthattheeuroanddollararethebiggestgameintown.

C.

accrueto,andareavitalconcernfor,MNCsformulatinginternationalsourcing,production,financingandmarketingstrategies.

D.

alloftheabove

48.

TheEfficientMarketsHypothesisstates

A.

marketstendtoevolvetolowtransactionscostsandspeedyexecutionoforders.

B.

currentassetprices(e.g.exchangerates)fullyreflectalltheavailableandrelevantinformation.

C.

currentexchangeratescannotbeexplainedbysuchfundamentalforcesasmoneysupplies,inflationratesandsoforth.

D.

noneoftheabove

49.

Good,inexpensive,andfairlyreliablepredictorsoffutureexchangeratesinclude

A.

today'sexchangerate.

B.

currentforwardexchangerates(e.g.thesix-monthforwardrateisaprettygoodpredictorofthespotratethatwillprevailsixmonthsfromtoday).

C.

esotericfundamentalmodelsthattakeaneconometriciantouseandnoonecanexplain.

D.

botha)andb)

50.

Whichofthefollowingisatruestatement?

A.

Whileresearchersfounditdifficulttorejecttherandomwalkhypothesisforexchangeratesonempiricalgrounds,thereisnotheoreticalreasonwhyexchangeratesshouldfollowapurerandomwalk.

B.

Whileresearchersfounditeasytorejecttherandomwalkhypothesisforexchangeratesonempiricalgrounds,therearestrongtheoreticalreasonswhyexchangeratesshouldfollowapurerandomwalk.

C.

Whileresearchersfounditdifficulttorejecttherandomwalkhypothesisforexchangeratesonempiricalgrounds,therearecompellingtheoreticalreasonswhyexchangeratesshouldfollowapurerandomwalk.

D.

Noneoftheabove

51.

Iftheexchangeratefollowsarandomwalk

A.

thefutureexchangerateisunpredictable.

B.

thefutureexchangerateisexpectedtobethesameasthecurrentexchangerate,St=E(St+1).

C.

thebestpredictoroffutureexchangeratesistheforwardrateFt=E(St+1|It).

D.

bothb)andc)

52.

Oneimplicationoftherandomwalkhypothesisis

A.

giventheefficiencyofforeignexchangemarkets,itisdifficulttooutperformthemarket-basedforecastsunlesstheforecasterhasaccesstoprivateinformationthatisnotyetreflectedinthecurrentexchangerate.

B.

giventheefficiencyofforeignexchangemarkets,itisdifficulttooutperformthemarket-basedforecastsunlesstheforecasterhasaccesstoprivateinformationthatisalreadyreflectedinthecurrentexchangerate.

C.

giventherelativeinefficiencyofforeignexchangemarkets,itisdifficulttooutperformthetechnicalforecastsunlesstheforecasterhasaccesstoprivateinformationthatisnotyetreflectedinthecurrentfuturesexchangerate.

D.

noneoftheabove

53.

Therandomwalkhypothesissuggeststhat

A.

thebestpredictorofthefutureexchangerateisthecurrentexchangerate.

B.

thebestpredictorofthefutureexchangerateisthecurrentforwardrate.

C.

botha)andb)areconsistentwiththeefficientmarkethypothesis.

D.

Noneoftheabove

54.

Withregardtofundamentalforecastingversustechnicalforecastingofexchangerates

A.

thetechnicianstendtouse"causeandeffect"models.

B.

thefundamentaliststendtobelievethat"historywillrepeatitself"isthebestmodel.

C.

botha)andb)

D.

noneoftheabove

55.

Generatingexchangerateforecastswiththefundamentalapproachinvolves

A.

lookingatchartsoftheexchangerateandextrapolatingthepatternsintothefuture

B.

estimationofastructuralmodel

C.

substitutingtheestimatedvaluesoftheindependentvariablesintotheestimatedstructuralmodeltogeneratetheforecast

D.

bothb)andc)

56.

Whichofthefollowingissuesaredifficultiesforthefundamentalapproachtoexchangerateforecasting?

A.

Onehastoforecastasetofindependentvariablestoforecasttheexchangerates.Forecastingtheformerwillcertainlybesubjecttoerrorsandmaynotbenecessarilyeasierthanforecastingthelatter.

B.

Theparametervalues,thatisthe'sand's,thatareestimatedusinghistoricaldatamaychangeovertimebecauseofchangesingovernmentpoliciesand/ortheunderlyingstructureoftheeconomy.Eitherdifficultycandiminishtheaccuracyofforecastsevenifthemodeliscorrect.

C.

Themodelitselfcanbewrong.

D.

Alloftheabove

57.

Researchershavefoundthatthefundamentalapproachtoexchangerateforecasting

A.

outperformstheefficientmarketapproach.

B.

failstomoreaccuratelyforecastexchangeratesthaneithertherandomwalkmodelortheforwardratemodel.

C.

failstomoreaccuratelyforecastexchangeratesthantherandomwalkmodelbutisbetterthantheforwardratemodel.

D.

outperformstherandomwalkmodel,butfailstomoreaccuratelyforecastexchangeratesthantheforwardratemodel.

58.

Academicstudiestendtodiscreditthevalidityoftechnicalanalysis.Whichofthefollowingistrue?

A.

Thiscanbeviewedassupporttechnicalanalysis.

B.

Itcanberationalforindividualtraderstousetechnicalanalysis—ifenoughtradersusetechnicalanalysisthepredictionsbasedonitcanbecomeself-fulfillingtosomeextent,atleastintheshort-run.

C.

Thatcanbeexplainedbythedifficultyprofessorsmayhaveindifferentiatingbetweentechnicalanalysisandfundamentalanalysis.

D.

Noneoftheabove

59.

Themovingaveragecrossoverrule

A.

isafundamentalapproachtoforecastingexchangerates.

B.

statesthatacrossoveroftheshort-termmovingaverageabovethelong-termmovingaveragesignalsthattheforeigncurrencyisappreciating.

C.

statesthatacrossoveroftheshort-termmovingaverageabovethelong-termmovingaveragesignalsthattheforeigncurrencyisdepreciating.

D.

noneoftheabove

60.

Accordingtothetechnicalapproach,whatmattersinexchangeratedeterminationis

A.

thepastbehaviorofexchangerates.

B.

thevelocityofmoney.

C.

thefuturebehaviorofexchangerates.

D.

thebeta.

61.

Studiesoftheaccuracyofpaidexchangerateforecasters

A.

tendtosupporttheviewthat"yougetwhatyoupayfor".

B.

tendtosupporttheviewthatforecastingiseasy,atleastwithregardtomajorcurrenciesliketheeuroandJapaneseyen.

C.

tendtosupporttheviewthatbanksdotheirbestforecastingwiththeyen.

D.

noneoftheabove

62.

Accordingtotheresearchintheaccuracyofpaidexchangerateforecasters,

A.

asagroup,theydonotdoabetterjobofforecastingtheexchangeratethantheforwardratedoes.

B.

theaverageforecasterisbetterthanaverageatforecasting.

C.

theforecastersdoabetterjobofpredictingthefutureexchangeratethanthemarketdoes.

D.

noneoftheabove

63.

Accordingtotheresearchintheaccuracyofpaidexchangerateforecasters,

A.

youcanmakemoremoneysellingforecaststhanyoucanfollowingforecasts.

B.

theaverageforecasterisbetterthanaverageatforecasting.

C.

theforecastersdoabetterjobofpredictingthefutureexchangeratesthanthemarketdoes.

D.

noneoftheabove.

64.

Accordingtothemonetaryapproach,whatmattersinexchangeratedeterminationare

A.

therelativemoneysupplies.

B.

therelativevelocitiesofmonies.

C.

therelativenationaloutputs.

D.

alloftheabove

65.

Accordingtothemonetaryapproach,theexchangeratecanbeexpressedas

A.

B.

C.

D.

noneoftheabove

ShortAnswerQuestions

Pleasenotethatyouranswersareworthzeropointsiftheydonotincludecurrencysymbols($,€)

66.

Ifyouborrowed€1,000,000foroneyear,howmuchmoneywouldyouoweatmaturity?

67.

Ifyouborrowed$1,000,000foroneyear,howmuchmoneywouldyouoweatmaturity?

68.

Ifyouhadborrowed$1,000,000andtradedforeuroatthespotrate,howmany€doyoureceive?

69.

Ifyouhad€1,000,000andtradeditforUSDatthespotrate,howmanyUSDwillyouget?

70.

USINGYOURPREVIOUSANSWERSandabitmorework,findthe1-yearforwardexchangeratein$per€thatsatisfiesIRPfromtheperspectiveofacustomerthatborrowed$1mtradedfor€atthespotandinvestedati€=4%.

71.

USINGYOURPREVIOUSANSWERSandabitmorework,findthe1-yearforwardexchangeratein$per€thatthatsatisfiesIRPfromtheperspectiveofacustomerwhoborrowed€1m,tradedfordollarsatthespotrateandinvestedati$=2%.

72.

Thereis(atleast)oneprofitablearbitrageattheseprices.Whatisit?

Pleasenotethatyouranswersareworthzeropointsiftheydonotincludecurrencysymbols($,€)

73.

Ifyouborrowed€1,000,000foroneyear,howmuchmoneywouldyouoweatmaturity?

74.

Ifyouborrowed$1,000,000foroneyear,howmuchmoneywouldyouoweatmaturity?

75.

Ifyouhadborrowed$1,000,000andtradedforeuroatthespotrate,howmany€doyoureceive?

76.

Ifyouhad€1,000,000andtradeditforUSDatthespotrate,howmanyUSDwillyouget?

77.

USINGYOURPREVIOUSANSWERSandabitmorework,findthe1-yearforwardexchangeratein$per€thatsatisfiesIRPfromtheperspectiveofacustomerthatborrowed$1mtradedfor€atthespotandinvestedati€=3%.

78.

USINGYOURPREVIOUSANSWERSandabitmorework,findthe1-yearforwardexchangeratein$per€thatthatsatisfiesIRPfromtheperspectiveofacustomerwhoborrowed€1m,tradedfordollarsatthespotrateandinvestedati$=4%.

79.

Thereis(atleast)oneprofitablearbitrageattheseprices.Whatisit?

Assumethatyouarearetailcustomer(i.e.youbuyattheaskandsellatthebid).

Pleasenotethatyouranswersareworthzeropointsiftheydonotincludecurrencysymbols($,€)

80.

Ifyouborrowed€1,000,000foroneyear,howmuchmoneywouldyouoweatmaturity?

81.

Ifyouborrowed$1,000,000foroneyear,howmuchmoneywouldyouoweatmaturity?

82.

Ifyouhadborrowed$1,000,000andtradedforeuroatthespotrate,howmany€doyoureceive?

83.

Ifyouhad€1,000,000andtradeditforUSDatthespotrate,howmanyUSDwillyouget?

84.

USINGYOURPREVIOUS