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
What is the name for the bank market for deposits and loans that is denominated in a currency different to the currency of the country in which a bank is operating? A) internal currency market B) foreign exchange market C) external currency market D) interbank market ANSWER Answer: C
An example of an external currency market that was the first to form was the market where the dollar-denominated deposits were known as A) Euros. B) Eurodollars. C) petrodollars. D) exchange traded funds. ANSWER Answer: B
Interbank interest rates in various cities around the world are often the basis for interest rates in contractual loan agreements. What is the most important of these rates? A) London Interbank Offer Rate (LIBOR) B) Frankfurt Interbank Offer Rate (FIBOR) C) Hong Kong Interbank Offer Rate (HIBOR) D) Euro Interbank Offer Rate (EURIBOR) […]
When the forward premium or discount on the foreign currency equals the interest differential between the domestic and foreign interest rates divided by one plus the foreign interest rate, what is being satisfied? A) covered interest arbitrage B) interest rate parity C) domestic and foreign interest rates D) spot and forward exchange rates […]
If the underlying transaction gives you a liability, denominated in foreign currency, the general principal behind a money market hedge states you need an equivalent ________ in the money market to provide a hedge. A) liability B) asset C) forward contract D) foreign bank account ANSWER Answer: B
Processing float is the delay between the receipt of a check by a payee and its deposit in firm’s account. Indicate whether the statement is true or false ANSWER TRUE
Which one of the following would be the most logical reason to use a synthetic forward contract to hedge? A) forward contracts are not available in the currency of choice B) when time horizons are short, forward contracts can be expensive C) the underlying transaction is too risky D) the underlying transaction gives you an […]
Receipts and disbursements management techniques are aimed at minimizing a firm’s financing requirements by taking advantage of certain imperfections in the collection and payment system. Indicate whether the statement is true or false ANSWER TRUE
