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
When one of the counterparties to an agreement globally may possibly fail to honor its contract, it is known as ________ risk. A) interest rate B) business C) transaction D) default ANSWER Answer: D
When the possibility exists that the government of a nation may impose some form of exchange controls or tax on foreign investment, the risk is known as ________ risk. A) political B) exchange controls C) business risk D) government ANSWER Answer: A
The entire process resulting from a check issue and mail by a payer company to a payee company (i.e., mail float, processing float, and clearing float) is disbursement float to the payer company and is collection float to the payee company. Indicate whether the statement is true or false ANSWER TRUE
If interest rate parity is in effect, there are ________. A) no profitable opportunities for covered interest arbitrage B) many opportunities for covered interest arbitrage C) currency dealers will arbitrage interest rate differentials in different countries D) currency dealers will be motivated to arbitrage forward market contracts ANSWER Answer: A
When it is said that there exists covered interest arbitrage opportunities, the term covered means the arbitrage is not exposed to A) exchange rate risk. B) manipulation by speculators. C) central bank interventions. D) government actions against the arbitrageurs. ANSWER Answer: A