FIN 4610 40

Which one of the following statements is correct concerning the foreign exchange market? A.The trading floor of the foreign exchange market is located in London, England. B.The foreign exchange market is the world's second largest financial market. C.The four primary currencies that are traded in the foreign exchange market are the U.S. dollar, the British pound, the French franc, and the euro. D.Importers, exporters, and speculators are key players in the foreign exchange market. E.The U.S. created a communications network called SWIFT to facilitate currency trading.

D.Importers, exporters, and speculators are key players in the foreign exchange market.

Which one of the following statements is correct given the following exchange rates?A.On Thursday, one U.S. dollar was equal to 0.1023 South African rand. B.On Friday, one Thai baht was equal to $35.21. C.Both the South African rand and the Thai baht appreciated against the U.S. dollar from Thursday to Friday. D.The South African rand appreciated from Thursday to Friday against the U.S. dollar. E.The U.S. dollar depreciated from Thursday to Friday against the Thai baht.

D.The South African rand appreciated from Thursday to Friday against the U.S. dollar.

Which one of the following formulas correctly describes the relative purchasing power parity relationship? A.E(St) = S0[1 + (hFC-hUS)]t B.E(St) = S0[1 -(hFC-hUS)]t C.E(St) = S0[1 + (hUS+ hFC)]t D.E(St) = S0[1 -(hUS-hFC)]t E.E(St) = S0[1 + (hUS-hFC)]t

A.E(St) = S0[1 + (hFC-hUS)]t

Interest rate parity: A.eliminates covered interest arbitrage opportunities. B.exists when spot rates are equal for multiple countries. C.means the nominal risk-free rate of return must be the same across countries. D.exists when the spot rate is equal to the futures rate. E.eliminates exchange rate fluctuations.

A.eliminates covered interest arbitrage opportunities.

Uncovered interest parity is defined as: A.E(St) = S0[1 + (hFC-hUS)]t. B.E(St) = S0[1 + (RFC-RUS)]t. C.E(St) = S0[1 -(RFC-RUS)]t. D.E(St) = S0[1 + (RUS-RFC)]t. E.E(St) = S0[1 + (RFC+ RUS)]t.

B.E(St) = S0[1 + (RFC-RUS)]t.

The home currency approach: A.discounts all of a project's foreign cash flows using the current spot rate. B.employs uncovered interest parity to project future exchange rates. C.computes the net present value (NPV) of a project in the foreign currency and then converts that NPV into U.S. dollars. D.utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency.E.utilizes the international Fisher effect to compute the relevant exchange rates needed to compute the NPV of foreign cash flows in U.S. dollars.

B.employs uncovered interest parity to project future exchange rates

Relative purchasing power parity: A.states that identical items should cost the same regardless of the currency used to make the purchase. B.relates differences in inflation rates to differences in exchange rates. C.compares the real rate of return to the nominal rate of return. D.explains the differences in real rates across national boundaries. E.relates future exchange rates to current spot rates.

B.relates differences in inflation rates to differences in exchange rates.

The LIBOR is primarily used as the basis forthe rate charged on: A.short-term debt in the Lisbon market. B.mortgage loans in the Lisbon market. C.Eurodollar loans in the London market. D.U.S. federal funds. E.interbank loans in the U.S.

C.Eurodollar loans in the London market.

The interest rate parity approximation formula is: A.Ft= S0[1 + (RFC+ RUS)]t. B.Ft= S0[1 -(RFC-RUS)]t. C.Ft= S0[1 + (RFC-RUS)]t. D.Ft= S0[1 + (RFCRUS)]t. E.Ft= S0[1 -(RFC+ RUS

C.Ft= S0[1 + (RFC-RUS)]t.

Where does most of the trading in Eurobonds occur?A.Munich B.Frankfurt C.London D.New York E.Paris

C.London

Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S. dollar and the British pound? A.S0= PUKPUS B.PUS= FtPUK C.PUK= S0PUS D.Ft= PUSPUK E.S0Ft= PUKPUS

C.PUK= S0PUS

Absolute purchasing power parity is most apt to exist for which one of the following items?A.lumber B.computer C.silver D.automobile E.cell phone

C.silver

Spot trades must be settled: A.at the time of the trade. B.on the day following the trade date. C.within two business days. D.within three business days. E.within one week of the trade date.

C.within two business days.

Assume the euro is selling in the spot market for $1.33. Simultaneously, in the 3-month forward market the euro is selling for $1.35. Which one of the following statements correctly describes this situation? A.The spot market is out of equilibrium. B.The forward market is out of equilibrium. C.The dollar is selling at a premium relative to the euro. D.The euro is selling at a premium relative to the dollar. E.The euro is expected to depreciate in value.

D.The euro is selling at a premium relative to the dollar.

A basic interest rate swap generally involves trading a: A.short-term rate for a long-term rate. B.foreign rate for a domestic rate. C.government rate fora corporate rate. D.fixed rate for a variable rate. E.taxable rate for a tax-exempt rate.

D.fixed rate for a variable rate.

The forward rate market is dependent upon: A.current forward rates exceeding current spot rates. B.current spot rates exceeding current forward rates over time. C.current spot rates equaling current forward rates, on average, over time. D.forward rates equaling the actual future spot rates on average over time. E.current spot rates equaling the actual future spot rates on average over time.

D.forward rates equaling the actual future spot rates on average over time

Which one of the following names matches the country where the bond is issued?A.Empire: United Kingdom B.Western: United States C.Samurai: China D.Bulldog: France E.Rembrandt: Netherlands

E.Rembrandt: Netherlands

The market value of the Blackwell Corporation just declined by 5 percent. Analysts believe this decrease in value was caused by recent legislation passed by Congress. Which type of risk does this illustrate?A.international risk B.diversifiable risk C.purchasing power risk D.exchange rate risk E.political risk

E.political risk

The unbiased forward rate is a:A.condition where a future spot rate is equal to the current spot rate. B.guarantee of a future spot rate at one pointin time. C.condition where the spot rate is expected to remain constant over a period of time. D.relationship between the future spot rate of two currencies at an equivalent point in time. E.predictor of the future spot rate at the equivalent point in time.

E.predictor of the future spot rate at the equivalent point in time.

The international Fisher effect states that _____ rates are equal across countries. A.spot B.one-year future C.nominal D.inflation E.real

E.real