International Finance - Test 1
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) What do the market makers in the currency markets provide?
A) liquidity
B) stability
C) insurance against default by the buyers
D) solvency
1)
2) When the value of the British pound changes from $1.25 to $1.50, the pound has ________ and the
U.S. dollar has ________.
A) appreciated; depreciated
B) depreciated; depreciated
C) depreciated; appreciated
D) appreciated; appreciated
2)
3) Which one of the following statements is the most accurate?
A) A rise in the interest rate offered by dollar deposits does not affect the U.S. dollar.
B) For a given euro interest rate and constant expected exchange rate, a rise in the interest rate
offered by dollar deposits causes the dollar to appreciate.
C) A rise in the interest rate offered by the dollar causes the euro to appreciate.
D) A rise in the interest rate offered by dollar deposits causes the dollar to depreciate.
E) A rise in the interest rate offered by dollar deposits causes the dollar to appreciate.
3)
4) Forward and spot exchange rates
A) are always such that the forward exchange rate is higher.
B) do move closely together, but are not necessarily equal.
C) are unrelated to the value date.
D) do not move closely together.
E) are necessarily equal.
4)
5) Which one of the following statements is the most accurate?
A) For a fixed interest rate, a rise in the expected future exchange rate causes a rise in the current
exchange rate.
B) For a fixed interest rate, a fall in the expected future exchange rate causes a rise in the current
exchange rate.
C) For a given dollar interest rate and a constant expected exchange rate, a rise in the interest
rate of the euro causes the dollar to depreciate.
D) For a fixed interest rate, a rise in the expected future exchange rate causes a fall in the current
exchange rate.
E) For a fixed interest rate, a rise in the expected future exchange rate does not cause a change in
the current exchange rate.
5)
1
6) When a country's currency depreciates,
A) foreigners find that its exports are more expensive, and domestic residents find that imports
from abroad are cheaper.
B) foreigners find that its exports are cheaper; however, domestic residents are not affected.
C) foreigners are not affected, but domestic residents find that imports from abroad are more
expensive.
D) foreigners find that its exports are more expensive, and domestic residents find that imports
from abroad are more expensive.
E) foreigners find that its exports are cheaper and domestic residents find that imports from
abroad are more expensive.
6)
7) When an exchange rate is quoted by a dealer in country as the local currency price of one unit of
foreign currency, he is quoting the ________.
A) ask quote
B) bid quote
C) indirect quote
D) direct quote
7)
8) What is the expected dollar rate of return on euro deposits with today's exchange rate at $1.167 per
euro, next year's expected exchange rate at $1.10 per euro, the dollar interest rate at 10%, and the
euro interest rate at 5%?
A) 0%
B) 11%
C) 10%
D) -1%
8)
9) Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro.
Further, assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar
deposits is 10 percent and on euro it is 4 percent. Under these assumptions,
A) Not enough information is given to answer the question.
B) interest parity fluctuates.
C) interest parity does not hold.
D) it is hard to tell whether interest parity does or does not hold.
E) interest parity does hold.
9)
10) If the dollar interest rate is 10 percent, the euro interest rate is 6 percent, then
A) an investor should be indifferent between dollars and euros an investor should invest only in
dollars if the expected dollar depreciation against the euro is 4 percent.
B) an investor should invest only in euros.
C) an investor should invest only in euros an investor should invest only in dollars if the
expected dollar depreciation against the euro is 4 percent.
D) an investor should invest only in dollars if the expected dollar depreciation against the euro is
4 percent.
E) an investor should invest only in dollars.
2
10)