What problem occurred as the result of a monetary stabilization plan consisting of tiding two currencies to the same exchange rate? A) Peso problem B) Argentina 2000 C) Swedish problem D) Survey data problem ANSWER Answer: B
Date: September 19th, 2020
When the forward rate equals the expected future spot rate, the forward rate is said to be a(n) ________ of the future spot rate. A) unbiased predictor B) forward market investment C) forward market return D) unsystematic risk ANSWER Answer: A
Date: September 19th, 2020
What does the “carry trade” term mean? A) Borrow in the domestic currency to earn only the higher yield of the dollar implied by the regression. B) Borrow in the foreign currency to earn only the expected capital appreciation of the dollar implied by the regression. C) Borrow in the domestic currency to earn both […]
Date: September 19th, 2020
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
Date: September 19th, 2020
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. […]
Date: September 19th, 2020
Given an example of how a money market hedge is constructed? What will be an ideal response? ANSWER Answer: If the underlying business transaction gives you a liability in foreign currency, you can borrow domestic currency, convert the principal from the borrowing into foreign currency, and invest the foreign currency thereby acquiring a […]
Date: September 19th, 2020
Float exists when a payee has received funds in a spendable form but these funds have not been withdrawn from the account of the payer. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
If volatility in foreign exchange markets, what is the relationship to the bid—ask spread? What will be an ideal response? ANSWER Answer: The bid-ask spread compensates the bank’s trader for making a market in the two currencies. This requires that the trader hold an inventory of foreign currency, and an increase in volatility […]
Date: September 19th, 2020
It is often said that interest rate parity is satisfied when the differential between the interest rates denominated in two currencies equals the forward premium or discount between the two currencies. Explain why this is an imprecise statement when the interest rates are not continuously compounded. ANSWER Answer: Interest rate parity requires the […]
Date: September 19th, 2020
If there is no systematic difference between the forward rate and the expected future spot rate, then the expected forward market return should be ________. A) zero B) greater than one C) equal to the stockholders’ required rate of return D) less than one but greater than zero ANSWER Answer: A
Date: September 19th, 2020
