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
Which one of the following is the only determinant of volatility in the forward currency markets? A) interest rate parity B) economic recovery C) political turmoil D) variance of the future exchange rates ANSWER Answer: D
Regression tests of the unbiasedness hypothesis indicate that it is ________ with real life events. A) an unbiased indicator of expected future exchange rates B) very consistent C) not consistent D) has a strong correlation to the current account ANSWER Answer: C
With the ACH (automated clearing house) credits, disbursement float is sacrificed because ACH transactions immediately draw down a company’s payroll account on pay day. Indicate whether the statement is true or false ANSWER TRUE
Modern portfolio theory developed by William F. Sharpe is the foundation of ________. A) currency market parity models B) the balance sheet hedge C) the capital asset pricing model D) adjusted net present value model ANSWER Answer: C
Multinational corporations most often hedge their transaction exchange rate risk using currency ________. A) options B) futures C) spreads D) forward contracts ANSWER Answer: D
If investors ________, we would assume that do not make systematic mistakes when forecasting exchange rates. A) have rational expectations B) have complete knowledge of all possible bid and ask quotes C) know that interest rate differentials provide information about the intensity of devaluations D) anticipate events that occur ANSWER Answer: A
