FIN329 Fail

It is safe to say that most determinants of the spot exchange rate are also affected by changes in the spot rate, i.e., they are linked AND mutually determined. A) True B) False

A) True

Slow economic growth and continued unemployment problems are common reasons for central banks to hold currency values down. A) True B) False

A) True

Some of the world's largest and most financially sound firms may borrow at variable rates less than LIBOR A) True B) False

A) True

The ___________ approach argues that equilibrium exchange rates are achieved when the net inflow of foreign exchange arising from current account activities is equal to the net outflow of foreign exchange arising from financial account activities. A) balance of payments В monetary C) asset market D) law of one price

A) balance of payments

An interbank-traded contract to buy or sell interest rate payments on a notional principal is called a/an: A) forward rate agreement. B) interest rate future. C) interest rate swap. D) none of the above

A) forward rate agreement.

A swap agreement may involve currencies or interest rates, but never both. A) True B) False

B) False

Both covered and uncovered interest arbitrage are risky operations in the sense that even without default in the securities, the returns are unknown until all transactions are complete. A) True B) False

B) False

Countries may use direct and indirect intervention to defend or protect their currency values. Overall, intervention seem to be effective for the largest economies, and not so much for the smaller emerging economies. A) True B) False

B) False

Technical analysts, traditionally referred to as chartists, focus on fundamental data to determine past trends that are expected to continue into the future. A) True B) False

B) False

The authors claim that theoretical and empirical studies appear to show that fundamentals do not apply to the long-term for foreign exchange. A) True B) False

B) False

The fall in the value of the domestic currency will sharply reduce the purchasing power of foreign tourists in the country whose currency values are falling. A) True B) False

B) False

The roots of the Asian currency crisis extended from a fundamental change in the economics of the region, the transition of many Asian nations from being net importers to net exporters. A) True B) False

B) False

The theories we have learned (BOP, parity and asset/market approach) help us forecast currency values in the short, medium, and long term A) True B) False

B) False

interest rate futures are relatively unpopular among financial managers because of their relative illiquidity and their difficulty of use. A) True B) False

B) False

Which theory links interest rates to the foreign exchange spot prices. A) IRP B) IFE C) Absolute PPP D) Relative PPP

B) IFE

According to the International Fisher Effect, the forecast change in the spot rate between two countries is equal to: A) the current spot rate multiplied by the ratio of the inflation rates in the respective countries. B) but the opposite sign to the difference between nominal interest rates. C) but the opposite sign to the difference between inflation rates. D) but the opposite sign to the difference between real interest rates

B) but the opposite sign to the difference between nominal interest rates.

A/an _______ is a contract to lock in today interest rates over a given period of time. A) forward rate agreement B) interest rate future C) interest rate swap D) none of the above

B) interest rate future

Exchange rate pass-through may be defined as: A) the bid/ask spread on currency exchange rate transactions. B) the degree to which the prices of imported and exported goods change as a result of exchange rate changes. C) the PPP of lesser-developed countries. D) the practice by Great Britain of maintaining the relative strength of the currencies of the Commonwealth countries under the current floating exchange rate regime

B) the degree to which the prices of imported and exported goods change as a result of exchange rate changes.

The price of a Big Mac in the U.S. is $3.41 and the price in Mexico is Peso 29.0. From this we can derive the implied PPP of the Peso per dollar. Which theory describes this? A) Fisher Effect B) Relative Purchasing Power Parity C) Absolute Purchasing Power Parity D) Interest Rate Parity

C) Absolute Purchasing Power Parity

Covered interest arbitrage is possible when: A) Inflation affects spot prices differently B) A speculator knows parity conditions exist C) Interest rates and forward rates are not in balance D) Interest rates and forward rates are in balance

C) Interest rates and forward rates are not in balance

A speculator buying a CAD currency put option (against the USD) is hoping that: A) The USD depreciates to make a profit. B) The CAD appreciate to make a profit. C) The USD appreciates to make a profit D) The price does not change to preserve its value.

C) The USD appreciates to make a profit (Because it would take less CAD to make a dollar)

The buyer of a Call Option has _____ profit potential, while the writer has______ loss potential. A) Limited, limited. B) Limited, unlimited. C) Unlimited, unlimited. D) Unlimited, limited.

C) Unlimited, unlimited.

An agreement to swap the currencies of a debt service obligation would be termed a/an: A) interest rate swap. B) forward swap. C) currency swap. D) none of the above

C) currency swap.

A call option whose exercise price exceeds the spot price is said to be: A) in-the-money. B) at-the-money. C) out-of-the-money. D) over-the-spot.

C) out-of-the-money.

Which of the following is NOT a technique used by governments or central banks to impact domestic currency valuation? A) Indirect Intervention B Direct Intervention C) Capital Controls D) All of the above are techniques used to control currency valuation.

D) All of the above are techniques used to control currency valuation.

Which of the following is NOT an assumption of market efficiency? A) Instruments denominated in other currencies are perfect substitutes for one another. B) Transaction costs are low or nonexistent. C) All relevant information is quickly reflected in both spot and forward exchange markets. D) All of the above are true

D) All of the above are true

Which of the following statements regarding currency futures contracts and forward contracts is NOT true? A) A futures contract is a standardized amount per currency whereas the forward contact is for any size desired. B) A futures contract is for a fixed maturity whereas the forward contract is for any maturity you like. C) Futures contracts trade on organized exchanges whereas forwards take place between individuals and banks with other banks via telecom linkages. D) All of the above are true.

D) All of the above are true.

A/An _____ option can be exercised only on its expiration date, whereas a/an ______ option can be exercised anytime between the date of writing up to and including the exercise date. A) American; European B) American; British C) Asian; American D) European; American

D) European; American

If a financial manager earning interest on a future date were to buy Futures and interest rates end up going down, the position outcome would be: A) Futures price falls; short earns a profit. B) Futures price rises; short earns a loss. C) Future price falls; long earns a loss. D) Futures price rises; long earns a profit

D) Futures price rises; long earns a profit

Which theory links interest rates to the forward rate. A) IFE B) Absolute PPP C) Relative PPP D) IRP

D) IRP

A speculator seeking to make profit using currency futures makes money by: A) Buying a futures now and hoping its value goes down. B) Selling a futures now and hoping its value goes up in value. C) Selling a futures now and hoping there is no change in the price of the futures. D) Selling a futures now and hoping its value goes down later.

D) Selling a futures now and hoping its value goes down later.

The buyer of a call option: A) has a maximum loss equal to the premium paid. B) has a gain equal to but opposite in sign to the writer of the option. C) has an unlimited maximum gain potential. D) all of the above

D) all of the above

Individual borrowers - whether they be governments or companies- possess their own individual credit rating, the market's assessment of their ability to repay debt in a timely manner. These credit assessments influence all the following EXCEPT: A) cost of capital. B) access to capital. C) credit risk premium. D) risk-free rate.

D) risk-free rate.