Describe the sequence of transactions required to do a covered interest arbitrage out of British pound and into U.S. dollars. What will be an ideal response? ANSWER Answer: To do a covered interest arbitrage out of ₤ and into U.S. dollars, one would borrow ₤ from the bank at the bank’s ask interest […]
When the forward rate is equal to the expected future spot rate, the forward rate is said to be ________ the future spot rate. A) an information signal for B) an unbiased predictor of C) a hedge for D) in parity with the expected future spot rate ANSWER Answer: B
Collection float is experienced by a payer and is a delay in the receipt of funds. Indicate whether the statement is true or false ANSWER FALSE
Which one of the following would some say invalidates the unbiasedness hypothesis? A) the Fisher Effect B) the efficient market hypothesis C) the Siegel paradox D) the law of one price ANSWER Answer: C
If market efficiency is identified with parity, currency markets that are ________ provide no opportunities for currency traders to earn profits. A) not in parity B) in parity C) in interest rate parity only D) in purchasing power parity ANSWER Answer: B
Disbursement float is experienced by a payee and is a delay in the actual withdrawal of funds. Indicate whether the statement is true or false ANSWER FALSE
Mail float is the delay between the deposit of a check by a payee and the actual availability of the funds. Indicate whether the statement is true or false ANSWER FALSE
Collection float results from the lapse between the time that a firm deducts a payment from its checking account ledger and the time that funds are actually withdrawn from its accounts. Indicate whether the statement is true or false ANSWER FALSE
The empirical evidence indicates that interest rate parity is the norm, especially during periods of financial market ________. A) arbitrage B) turbulence C) profit-taking D) tranquility ANSWER Answer: D
What is the market portfolio? A) the large, well-diversified portfolio that investors should hold according to finance theory B) the large, well-diversified portfolio without international securities C) the portfolio that represents a global portfolio D) the portfolio with strictly domestic securities ANSWER Answer: A