The difference between the interest rate that a bank charges on its loans and the interest rate that the banks pay their depositors is known as the A) percent spread. B) arbitrage opportunity. C) bid-ask spread. D) covered interest arbitrage opportunity. ANSWER Answer: C
When parity conditions are not in effect in currency and money markets, traders could make extraordinary profits from a practice known as ________. A) covered interest rate parity B) covered interest rate arbitrage C) triangular arbitrage D) forward market arbitrage ANSWER Answer: B
Which one of the following is NOT a reason for using hedges such as a synthetic forward? A) In some currency markets, forward contracts may not be available, but they can be manufactured using a money market hedge. B) Individual companies are not able to borrow and lend at the interest rates available in the […]
What is the name of the interbank interest rate used in external currency markets that is the most important and used in various cities globally in contractual loan agreements? A) the fed funds rate B) twelfth district interest rate C) LIBOR D) the U.S. prime rate ANSWER Answer: C
When there are no intervening cash flows between the time a deposit is made and the maturity of the deposit, the interest rates are said to be ________. A) discount rate B) compound interest rate C) covered interest rate D) spot interest rates ANSWER Answer: D
What is the cost of the marginal cash discount? (See Table 14.7) A) $768,750 B) $300,000 C) $307,500 D) $230,625 ANSWER D
What is the net result of increasing the cash discount? (See Table 14.7) A) +$33,750 B) -$33,750 C) +$128,750 D) -$58,750 ANSWER C
When countries have pegged exchange rate systems, they often set up ________ to improve the credibility of the system in the eyes of the global traders. A) target zone systems B) futures markets for currencies C) currency board systems D) sterilized interventions ANSWER Answer: C
Which one of the following systems would most often be used by a developing economy? A) target zone B) currency board C) floating exchange rate D) crawling peg ANSWER Answer: D
What is the most likely outcome if a central bank suddenly prints a large amount of new money? A) no change in the inflation rate B) higher inflation C) recession D) prosperity ANSWER Answer: B