Understanding the theory of purchasing power parity is important because deviations from PPP significantly affect the A) operations of the central bank. B) hedging activities of multinational firms. C) profitability of multinational firms. D) arbitrage opportunities in the banking markets. ANSWER Answer: C
Date: September 19th, 2020
Within the United States, what is the name for the power of a dollar when it is used to purchase an amount of goods and services? A) internal purchasing power B) external purchasing power C) absolute purchasing power parity D) relative purchasing power parity ANSWER Answer: A
Date: September 19th, 2020
Float is important in the cash conversion cycle of a firm because ________. A) its presence reduces a firm’s average collection period B) its presence reduces a firm’s average payment period C) its presence lengthens both a firm’s average collection period and its average payment period D) its presence reduces the investment that a firm […]
Date: September 19th, 2020
The yields on negotiable certificates of deposit are typically above those on U.S. Treasury issues and comparable to the yields on commercial paper with similar maturities. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The Solar Inc has daily cash receipts of $90,000. A recent analysis of its collections indicated that customers’ payments were in the mail for an average of 4 days. Once received,the payments are processed in one and a half days. After payments are deposited, it takes an average of two and a half days for […]
Date: September 19th, 2020
Describe how you construct the uncertain ₤-denominated return from investing 1 ₤ in the Swiss franc money market. What will be an ideal response? ANSWER Answer: If you invest ₤ in the Swiss money market, you first must convert from ₤ into Swiss francs in the spot foreign exchange market. With the Swiss […]
Date: September 19th, 2020
If you were attempting to forecast the forward exchange rate for a particular horizon such as 90 days, how would the forward exchange rate be an unbiased predictor of the future spot exchange rate? What will be an ideal response? ANSWER Answer: If the forward exchange rate for 90 days is an unbiased […]
Date: September 19th, 2020
If interest rate parity prevails, what is the return from a hedged foreign currency investment? What will be an ideal response? ANSWER Answer: A hedged foreign currency investment sells the known foreign currency return in the forward market at the time of the investment. This eliminates exposure to foreign exchange risk, but it […]
Date: September 19th, 2020
Zero-balance accounts are checking accounts in which a zero balance is maintained and the bank automatically covers all checks presented against the accounts. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Federal agency issues are low-risk securities issued by government agencies but not guaranteed by the U.S. Treasury. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
