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 […]
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
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
Eurodollar deposits are deposits of currency that are not native to the country in which the bank is located. Indicate whether the statement is true or false ANSWER TRUE
To be truly marketable, a security must have three basic characteristics: a ready market, risk-free, and safety of principal. Indicate whether the statement is true or false ANSWER FALSE
Disbursement float results from the delay between the time that a payer or customer deducts a payment from its checking account ledger (disburses it) and the time that a payee or vendor actually receives these funds in a spendable form. Indicate whether the statement is true or false ANSWER FALSE
Which one of the following is NOT a drawback when economists use survey data to examine the unbiasedness hypothesis? A) Participants may not have an incentive to respond honestly. B) Participants’ investment actions are not consistent with their answers. C) Selfish motives are generally not significant. D) They don’t know the marginal investor’s expectations. […]
A lockbox system is used to reduce collection float by shortening all three basic float components (i.e., mail, processing, and clearing). Indicate whether the statement is true or false ANSWER TRUE
The peso problem got its name during the period 1955-1976 when the ________ authorities were attempting to peg the peso-dollar exchange rate. A) Argentine B) Brazilian C) Mexican D) Honduran ANSWER Answer: C
A phenomenon known as ________ arises when rational investors anticipate events that do not with the frequency that the investors expect. A) interest rate parity B) the peso problem C) rational expectations D) purchasing power parity ANSWER Answer: B
