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) […]
What is the negative side effect on the money supply of a non-sterilized foreign exchange intervention? A) A higher money supply eventually leads to lower inflation, and the foreign exchange objective of the central bank’s policy may conflict with its abroad goal of price stability. B) A higher money supply eventually leads to higher inflation, […]
What is the relationship of currency risk in a floating exchange rate system to the future exchange rate changes? What will be an ideal response? ANSWER Answer: To characterize the risk of a currency position, you must try to characterize the conditional distribution of the future exchange rate changes. With floating exchange rates, […]
What are the three major components of the official reserves account? A) foreign exchange reserves, gold, and IMF-related reserve assets B) foreign exchange reserves, foreign government bonds, gold C) IMF-related reserve assets, gold, and U.S. Dollars D) gold, IMF-related reserves assets, and government-owned land ANSWER Answer: A
Identify the most important components of the official international reserves of a central bank? What will be an ideal response? ANSWER Answer: Official reserves consist of three major components: foreign exchange reserves, gold reserves, and IMF-related reserve assets, with the first being by far the most important component. Foreign exchange reserves are all […]
When a central bank buys foreign currency, its international reserves ________. A) decrease B) increase C) remain unchanged D) are difficult to determine ANSWER Answer: B
