1. A well-established, large, Indian-based MNE will probably be most adversely affected by which of the following elements of firm value?

a.	access to qualified labor pool
b.	an open marketplace
c.	access to unskilled labor
d.	access to capital

2 points

QUESTION 2

1. Governments can influence comparative advantage. Which of the following would NOT be considered a way that government influences comparative advantage?

a.	tariff
b.	other non-tariff restrictions
c.	managerial skills
d.	quotas

2 points

QUESTION 3

1. Firms seeking new markets product in foreign countries. Which of the following is NOT a reason for producing in foreign countries?

a.	meeting local demand in the domestic markets
b.	high likelihood of nationalization of assets
c.	meeting local demand in the foreign country
d.	low likelihood of nationalization of assets

2 points

QUESTION 4

1. A firm in the International Trade Phase of Globalization:

a.	receives all foreign receipts in foreign currency units and makes all foreign payments in domestic currency units.
b.	makes all foreign payments in foreign currency units and all foreign receipts in domestic currency units.
c.	bears direct foreign exchange risk.
d.	none of the above

2 points

QUESTION 5

1. Public ownership of business organizations does NOT include:

a.	civil society
b.	families
c.	the state
d.	the government

2 points

QUESTION 6

1. Privatization is described as:

a.	firms that do not use publicly available debt.
b.	government operations that are purchased by corporations.
c.	non-public meetings held by members of interlocking directorates.
d.	firms that are purchased by the government

2 points

QUESTION 7

1. The Stakeholder Capitalism Model (SCM):

a.	places shareholders as the primary stakeholders
b.	has financial profit as its main goal.
c.	considers all key participants of the firm.
d.	follows the Anglo-American model of corporate governance.

2 points

QUESTION 8

1. For a global firm, which of the following is generally NOT considered to be a viable goal?

a.	minimization of the firm's effective global tax burden
b.	maximization of after-tax income in all countries
c.	maintaining a weak foreign currency and a strong local currency
d.	correct positioning of the firm's cash flows as to country and currency

2 points

QUESTION 9

1. The suspension of the gold standard for fixed international exchange rates was due primarily to World War 1. Why was this the case? World War 1:

a.	lasted too long.
b.	cost too much money.
c.	needed too much gold for armament plating.
d.	interrupted the free movement of gold.

2 points

QUESTION 10

1. Under the IMF's exchange rate regime "de facto classification," a country that has given up its own sovereignty over monetary policy is considered to have:

a.	floating arrangements.
b.	soft pegs.
c.	a residual agreement.
d.	hard pegs

2 points

QUESTION 11

1. With reference to the ?Impossible Trinity,? if a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?

a.	exchange rate stability and full financial integration
b.	monetary independence and exchange rate stability
c.	full financial integration and monetary independence
d.	A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.

2 points

QUESTION 12

1. The countries that use the euro as their currency have:

a.	gained control over their own money supply (monetary independence), allowed the free movement of capital in and out of their economies (financial integration), but give up exchange rate stability.
b.	agreed to use a single currency (exchange rate stability), allow individual control of their own money supply (monetary independence), but give up the free movement of capital in and out of their economies (financial integration).
c.	agreed to use a single currency (exchange rate stability), allow the free movement of capital in and out of their economies (financial integration), but give up individual control of their own money supply (monetary independence).
d.	none of the above

2 points

QUESTION 13

1. In January 2002, the Argentine Peso changed in value from Peso1.00/$ to Peso1.40/$, thus, the Argentine Peso ________ against the U.S. Dollar..

a.	remained neutral
b.	weakened
c.	strengthened
d.	all of the above

2 points

QUESTION 14

1. Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?

a.	The U.S. subsidiary of a British firm pays bonuses to its employees in Chicago.
b.	A Canadian lumber baron purchases a U.S. corporate bond through an investment broker in Seattle.
c.	An American tourist purchases cheese in London, England.
d.	All of the above are considered BOP transactions.

2 points

QUESTION 15

1. The balance of payments:

a.	records all international transactions for a country over a period of time.
b.	adds up the value of all assets and liabilities of a country on a specific date.
c.	determines the eligibility of countries for World Bank aid.
d.	all of the above

2 points

QUESTION 16

1. The two major concerns about foreign direct investment are:

a.	who receives the profits and taxes.
b.	who pays the taxes and who receives the taxes.
c.	national defense and taxes.
d.	who controls the assets and who receives the profits.

2 points

QUESTION 17

1. Imports have the potential to lower a country's inflation rate because of each of the following EXCEPT:

a.	the import of lower priced services limits what domestic competitors can charge for services.
b.	the higher prices of foreign goods spurs domestic competitors to cut prices.
c.	the import of lower priced goods limits what domestic competitors can charge for goods.
d.	all of the above

2 points

QUESTION 18

1. Which of the following is NOT likely to occur in the quantity adjustment phase of the J-Curve adjustment path?

a.	Exports become relatively less expensive.
b.	The balance of trade gets worse.
c.	Imports become relatively more expensive.
d.	All of the above are true.

2 points

QUESTION 19

1. A ________ is a securitized financial instrument that is sold to the market in tranches representing different levels of default risk.

a.	credit default swap (CDS)
b.	mortgaged backed security (MBS)
c.	collateralized debt obligation (CDO)
d.	guaranteed security asset (GSA)

2 points

QUESTION 20

1. The three stages of the global credit crisis of 2009-2009 were:

a.	1. The failure of specific mortgage-backed securities, 2. the failure of commercial and investment financial institutions, and 3. a credit-induced global recession.
b.	1. The failure of commercial and investment financial institutions, 2. a credit-induced global recession, 3. the failure of specific mortgage-backed securities credit-induced global recession.
c.	1. The failure of specific mortgage-backed securities, 2. a credit-induced global recession, 3. failure of commercial and investment financial institutions.
d.	1. The failure of commercial and investment financial institutions, 2. the failure of specific mortgage-backed securities, 3. a credit-induced global recession.

2 points

QUESTION 21

1. The member nations of the European Union have relative freedom to set their own fiscal policies EXCEPT for which of the following?

a.	government spending
b.	government taxation
c.	government printing of the euro currency
d.	government surpluses or deficits

2 points

QUESTION 22

1. While trading in foreign exchange takes place worldwide, the major currency trading centers are located in:

a.	London, New York, and Tokyo.
b.	Paris, Frankfurt, and London
c.	New York, Zurich, and Bahrain.
d.	Los Angeles, New York, and London.

2 points

QUESTION 23

1. The ________ is the mechanism by which participants transfer purchasing power between countries, obtain or provide credit for international trade transactions, and minimize exposure to the risks of exchange rate changes.

a.	foreign exchange market
b.	federal open market
c.	futures market
d.	LIBOR

2 points

QUESTION 24

1. Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase.

a.	speculators; arbitrageurs
b.	central banks; treasuries
c.	brokers; dealers
d.	dealers; brokers

2 points

QUESTION 25

1. The four currencies that constitute about 80% of all foreign exchange trading are:

a.	U.K pound, Chinese yuan, euro, and Japanese yen.
b.	U.S. dollar, euro, Chinese yuan, and U.K. pound.
c.	U.S. dollar, U.K. pound, yen, and Chinese yuan.
d.	U.S. dollar, Japanese yen, euro, and U.K. pound.

2 points

QUESTION 26

1. A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.

a.	"spot against forward"
b.	"repurchase agreement"
c.	"forspot"
d.	"forward against spot"

2 points

QUESTION 27

1. Daily trading volume in the foreign exchange market was about ________ per ________ in 2015.

a.	$3,200 billion; day
b.	$3,200 billion; month
c.	$5,300 billion; month
d.	$5,300 billion; day

2 points

QUESTION 28

1. If the direct quote for a U.S. investor for British pounds is $1.43/, then the indirect quote for the British. investor would be ________ and the direct quote for the U.S. investor would be ________.

a.	0.699/$; 0.699/$
b.	$0.699/; 0.699/$
c.	$1.43/; $1.43/
d.	1.43/; 0.699/$

2 points

QUESTION 29

1. Given the following exchange rates, which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity?

129.87/$

?1.1226/$

?0.00864/

a.	$0.8908/?
b.	113.96/?
c.	115.69/?
d.	$0.0077/

2 points

QUESTION 30

1. A German firm is attempting to determine the euro/pound exchange rate and has the following exchange rate information: USD/pound = $1.5509/ and the USD/euro rate = $1.2194/?. Therefore, the pound/euro rate must be:

a.	?0.7316/.
b.	1.2719/?.
c.	?1.2719/.
d.	0.7863/?

2 points

QUESTION 31

1. The Economist publishes annually the "Big Mac Index" by which they compare the prices of the McDonald's Corporation's Big Mac hamburger around the world. The index estimates the exchange rates for currencies based on the assumption that the burgers in question are the same across the world and therefore, the price should be the same. If a Big Mac costs $2.54 in the United States and 294 yen in Japan, what is the estimated exchange rate of yen per dollar as hypothesized by the Hamburger index?

a.	$0.0086/
b.	115.75/$
c.	$0.0081/
d.	124/$

2 points

QUESTION 32

1. Assume the implied PPP rate of exchange of Mexican Pesos per U.S. dollar is 8.50 according to the Big Mac Index. Further, assume the current exchange rate is Peso 7.50/$1. Thus, according to PPP and the Law of One Price, at the current exchange rate the peso is:

a.	undervalued
b.	overvalued.
c.	correctly valued.
d.	There is not enough information to answer this question.

2 points

QUESTION 33

1. ________ states that differential rates of inflation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate.

a.	The Fisher Effect
b.	Absolute Purchasing Power Parity
c.	The International Fisher Effect
d.	Relative Purchasing Power Parity

2 points

QUESTION 34

1. Assume a nominal interest rate on one-year U.S. Treasury Bills of 2.60% and a real rate of interest of 1.00%. Using the Fisher Effect Equation, what is the approximate expected rate of inflation in the U.S. over the next year?

1.00%

1.60%

2.10%

2.05%

2 points

QUESTION 35

1. Assume the current U.S. dollar-British spot rate is 0.6993/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%, what is the approximate forward exchange rate for 360 days?

a.	0.7060/$
b.	0.6993/$
c.	1.42/$
d.	1.43/$

2 points

QUESTION 36

1. A major U.S. multinational firm has forecast the euro/dollar rate to be ?1.10/$ one year hence, and an exchange rate of $1.40 for the British pound () in the same time period. What does this imply the company's expected rate for the euro per pound to be in one year?

a.	?1.54/
b.	1.40/?
c.	1.54/?
d.	?1.40/

2 points

QUESTION 37

1. Jaguar has full manufacturing costs of their S-type sedan of 22,803. They sell the S-type in the UK with a 20% margin for a price of 27,363. Today these cars are available in the US for $55,000 which is the UK price multiplied by the current exchange rate of $2.01/. Jaguar has committed to keeping the US price at $55,000 for the next six months. If the UK pound appreciates against the USD to an exchange rate of $2.15/, and Jaguar has not hedged against currency changes, what is the amount the company will receive in pounds at the new exchange rate?

a.	27,363
b.	22,803
c.	55,000
d.	25,581

2 points

QUESTION 38

1. With covered interest arbitrage:

a.	the market must be out of equilibrium.
b.	the arbitrageur trades in both the spot and future currency exchange markets.
c.	a "riskless" arbitrage opportunity exists.
d.	all of the above

2 points

QUESTION 39

1. Argentina's economic performance in the 1990s while their peso was pegged to the U.S. dollar can be characterized as ________ rates of inflation and ________ rates of unemployment.

a.	low; high;
b.	low; low
c.	high; low
d.	high; high

2 points

QUESTION 40

1. Peter Simpson thinks that the U.K. pound will cost $1.48/ in six months. A 6-month currency futures contract is available today at a rate of $1.44/. If Peter was to speculate in the currency futures market, and his expectations are correct, which of the following strategies would earn him a profit?

a.	Buy a pound currency futures contract.
b.	Sell a pound currency futures contract.
c.	Sell pounds today.
d.	Sell pounds in six months.

2 points

QUESTION 41

1. You hold a put option on yen is written with a strike price of 105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity?

a.	105/$
b.	110/$
c.	115/$
d.	100/$

2 points

QUESTION 42

1. A call option on ABC stock is bought for $3.00. This call option has a strike price of $30 and can be exercised in three months or less. If this option is exercise today when the stock price is $55, what is the net profit from buying this option?

a.	$3.00
b.	$12.00
c.	$15.00
d.	$22.00

2 points

QUESTION 43

1. Which of the following is NOT a contract specification for currency futures trading on an organized exchange?

a.	size of the contract
b.	last trading day
c.	maturity date
d.	All of the above are specified

2 points

QUESTION 44

1. Assume that a call option has an exercise price of $1.50/. At a spot price of $1.55/, the call option has:

a.	a time value of $0.00.
b.	an intrinsic value of $0.05.
c.	an intrinsic value of $0.00.
d.	a time value of $0.05.

2 points

QUESTION 45

1. An agreement to swap a fixed interest payment for a floating interest payment would be considered a/an:

a.	currency swap.
b.	interest rate swap.
c.	forward swap.
d.	none of the above.

2 points

QUESTION 46

1. Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a:

a.	margin.
b.	settlement.
c.	collateralized deposit.
d.	marked market sum.

2 points

QUESTION 47

1. A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period.

a.	swap
b.	forward
c.	option
d.	future

2 points

QUESTION 48

1. ________ is the active buying and selling of the domestic currency against foreign currencies.

a.	Direct Intervention
b.	Indirect Intervention
c.	Foreign Direct Investment
d.	Federal Funding

2 points

QUESTION 49

1. The ________ provides a means to account for international cash flows in a standardized and systematic manner.

a.	International Fisher Effect
b.	parity conditions
c.	balance of payments
d.	asset approach

2 points

QUESTION 50

1. ________ is defined as the spread of a crisis in one country to its neighboring countries and other countries with similar characteristics.

a.	Capital market liquidity
b.	Political science
c.	Contagion
d.	Speculation

1. A well-established, large, Indian-based MNE will probably be most adversely affected by which of the following elements of firm value? a access to qualified . labor pool b an open marketplace . c access to unskilled . labor d access to capital . 2 points QUESTION 2 1. Governments can influence comparative advantage. Which of the following would NOT be considered a way that government influences comparative advantage? a tariff . b other non-tariff . restrictions c managerial skills . d quotas . 2 points 1. QUESTION 3 Firms seeking new markets product in foreign countries. Which of the following is NOT a reason for producing in foreign countries? a meeting local demand in the . domestic markets b high likelihood of nationalization of . assets c meeting local demand in the foreign . country d low likelihood of nationalization of . assets 2 points QUESTION 4 1. A firm in the International Trade Phase of Globalization: a receives all foreign receipts in foreign currency units and makes all foreign payments in . domestic currency units. b makes all foreign payments in foreign currency units and all foreign receipts in domestic . currency units. c bears direct foreign exchange risk. . d none of the above . 2 points 1. QUESTION 5 Public ownership of business organizations does NOT include: a civil society . b families . c the state . d the . government 2 points QUESTION 6 1. Privatization is described as: a firms that do not use publicly available debt. . b government operations that are purchased by . corporations. c non-public meetings held by members of . interlocking directorates. d firms that are purchased by the government . 2 points QUESTION 7 1. The Stakeholder Capitalism Model (SCM): a places shareholders as the primary . stakeholders b has financial profit as its main goal. . c considers all key participants of the firm. . d follows the Anglo-American model of corporate . governance. 2 points 1. QUESTION 8 For a global firm, which of the following is generally NOT considered to be a viable goal? a minimization of the firm's effective global tax burden . b maximization of after-tax income in all countries . c maintaining a weak foreign currency and a strong local . currency d correct positioning of the firm's cash flows as to country . and currency 2 points QUESTION 9 1. The suspension of the gold standard for fixed international exchange rates was due primarily to World War 1. Why was this the case? World War 1: a lasted too long. . b cost too much money. . c needed too much gold for . armament plating. d interrupted the free movement of . gold. 2 points 1. QUESTION 10 Under the IMF's exchange rate regime "de facto classification," a country that has given up its own sovereignty over monetary policy is considered to have: a floating . arrangements. b soft pegs. . c a residual . agreement. d hard pegs . 2 points QUESTION 11 1. With reference to the \"Impossible Trinity,\" if a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve? a exchange rate stability and full financial integration . b monetary independence and exchange rate stability . c full financial integration and monetary independence . d A country cannot attain any of the exchange rate goals with a pure float . exchange rate regime. 2 points QUESTION 12 1. The countries that use the euro as their currency have: a gained control over their own money supply (monetary independence), allowed the free . movement of capital in and out of their economies (financial integration), but give up exchange rate stability. b agreed to use a single currency (exchange rate stability), allow individual control of their . own money supply (monetary independence), but give up the free movement of capital in and out of their economies (financial integration). c agreed to use a single currency (exchange rate stability), allow the free movement of . capital in and out of their economies (financial integration), but give up individual control of their own money supply (monetary independence). d none of the above . 2 points 1. QUESTION 13 In January 2002, the Argentine Peso changed in value from Peso1.00/$ to Peso1.40/$, thus, the Argentine Peso ________ against the U.S. Dollar.. a remained . neutral b weakened . c strengthened . d all of the . above 2 points 1. QUESTION 14 Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction? a The U.S. subsidiary of a British firm pays bonuses . to its employees in Chicago. b A Canadian lumber baron purchases a U.S. corporate bond through an . investment broker in Seattle. c An American tourist purchases cheese in London, England. . d All of the above are considered BOP transactions. . 2 points 1. QUESTION 15 The balance of payments: a records all international transactions for a country over a . period of time. b adds up the value of all assets and liabilities of a country on . a specific date. c determines the eligibility of countries for World Bank aid. . d all of the above . 2 points QUESTION 16 1. The two major concerns about foreign direct investment are: a who receives the profits and taxes. . b who pays the taxes and who receives the . taxes. c national defense and taxes. . d who controls the assets and who receives . the profits. 2 points 1. QUESTION 17 Imports have the potential to lower a country's inflation rate because of each of the following EXCEPT: a the import of lower priced services limits what domestic competitors can . charge for services. b the higher prices of foreign goods spurs domestic competitors to cut . prices. c the import of lower priced goods limits what domestic competitors can . charge for goods. d all of the above . 2 points QUESTION 18 1. Which of the following is NOT likely to occur in the quantity adjustment phase of the J-Curve adjustment path? a Exports become relatively less . expensive. b The balance of trade gets worse. . c Imports become relatively more . expensive. d All of the above are true. . 2 points 1. QUESTION 19 A ________ is a securitized financial instrument that is sold to the market in tranches representing different levels of default risk. a credit default swap (CDS) . b mortgaged backed security . (MBS) c collateralized debt obligation . (CDO) d guaranteed security asset . (GSA) 2 points 1. QUESTION 20 The three stages of the global credit crisis of 2009-2009 were: a 1. The failure of specific mortgage-backed securities, 2. the failure of commercial and . investment financial institutions, and 3. a credit-induced global recession. b 1. The failure of commercial and investment financial institutions, 2. a credit-induced . global recession, 3. the failure of specific mortgage-backed securities credit-induced global recession. c 1. The failure of specific mortgage-backed securities, 2. a credit-induced global recession, . 3. failure of commercial and investment financial institutions. d 1. The failure of commercial and investment financial institutions, 2. the failure of specific . mortgage-backed securities, 3. a credit-induced global recession. 2 points 1. QUESTION 21 The member nations of the European Union have relative freedom to set their own fiscal policies EXCEPT for which of the following? a government spending . b government taxation . c government printing of the euro . currency d government surpluses or deficits . 2 points QUESTION 22 1. While trading in foreign exchange takes place worldwide, the major currency trading centers are located in: a London, New York, and Tokyo. . b Paris, Frankfurt, and London . c New York, Zurich, and . Bahrain. d Los Angeles, New York, and . London. 2 points 1. QUESTION 23 The ________ is the mechanism by which participants transfer purchasing power between countries, obtain or provide credit for international trade transactions, and minimize exposure to the risks of exchange rate changes. a foreign exchange . market b federal open . market c futures market . d LIBOR . 2 points 1. QUESTION 24 Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase. a speculators; . arbitrageurs b central banks; . treasuries c brokers; dealers . d dealers; brokers . 2 points 1. QUESTION 25 The four currencies that constitute about 80% of all foreign exchange trading are: a U.K pound, Chinese yuan, euro, and . Japanese yen. b U.S. dollar, euro, Chinese yuan, and U.K. . pound. c U.S. dollar, U.K. pound, yen, and Chinese . yuan. d U.S. dollar, Japanese yen, euro, and U.K. . pound. 2 points 1. QUESTION 26 A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market. a "spot against . forward" b "repurchase . agreement" c "forspot" . d "forward against . spot" 2 points QUESTION 27 1. Daily trading volume in the foreign exchange market was about ________ per ________ in 2015. a $3,200 billion; . day b $3,200 billion; . month c $5,300 billion; . month d $5,300 billion; . day 2 points 1. QUESTION 28 If the direct quote for a U.S. investor for British pounds is $1.43/, then the indirect quote for the British. investor would be ________ and the direct quote for the U.S. investor would be ________. a 0.699/$; . 0.699/$ b $0.699/; . 0.699/$ c $1.43/; . $1.43/ d 1.43/; . 0.699/$ 2 points 1. QUESTION 29 Given the following exchange rates, which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity? 129.87/$ 1.1226/$ 0.00864/ a $0.8908 . / b 113.9 . 6/ c 115.6 . 9/ d $0.0077 . / 2 points 1. QUESTION 30 A German firm is attempting to determine the euro/pound exchange rate and has the following exchange rate information: USD/pound = $1.5509/ and the USD/euro rate = $1.2194/. Therefore, the pound/euro rate must be: a 0.7316/ . . b 1.2719/ . . c 1.2719/ . . d 0.7863/ . 2 points QUESTION 31 1. The Economist publishes annually the "Big Mac Index" by which they compare the prices of the McDonald's Corporation's Big Mac hamburger around the world. The index estimates the exchange rates for currencies based on the assumption that the burgers in question are the same across the world and therefore, the price should be the same. If a Big Mac costs $2.54 in the United States and 294 yen in Japan, what is the estimated exchange rate of yen per dollar as hypothesized by the Hamburger index? a $0.0086/ . b 115.75/ . $ c $0.0081/ . d 124/$ . 2 points QUESTION 32 1. Assume the implied PPP rate of exchange of Mexican Pesos per U.S. dollar is 8.50 according to the Big Mac Index. Further, assume the current exchange rate is Peso 7.50/$1. Thus, according to PPP and the Law of One Price, at the current exchange rate the peso is: a undervalued . b overvalued. . c correctly valued. . d There is not enough information to answer . this question. 2 points 1. QUESTION 33 ________ states that differential rates of inflation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate. a The Fisher Effect . b Absolute Purchasing Power . Parity c The International Fisher . Effect d Relative Purchasing Power . Parity 2 points QUESTION 34 1. Assume a nominal interest rate on one-year U.S. Treasury Bills of 2.60% and a real rate of interest of 1.00%. Using the Fisher Effect Equation, what is the approximate expected rate of inflation in the U.S. over the next year? 1.00 % 1.60 % 2.10 % 2.05 % 2 points QUESTION 35 1. Assume the current U.S. dollar-British spot rate is 0.6993/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%, what is the approximate forward exchange rate for 360 days? a 0.7060/ . $ b 0.6993/ . $ c 1.42/$ . d 1.43/$ . 2 points 1. QUESTION 36 A major U.S. multinational firm has forecast the euro/dollar rate to be 1.10/$ one year hence, and an exchange rate of $1.40 for the British pound () in the same time period. What does this imply the company's expected rate for the euro per pound to be in one year? a 1.54/ . b 1.40/ . c 1.54/ . d 1.40/ . 2 points QUESTION 37 1. Jaguar has full manufacturing costs of their S-type sedan of 22,803. They sell the Stype in the UK with a 20% margin for a price of 27,363. Today these cars are available in the US for $55,000 which is the UK price multiplied by the current exchange rate of $2.01/. Jaguar has committed to keeping the US price at $55,000 for the next six months. If the UK pound appreciates against the USD to an exchange rate of $2.15/, and Jaguar has not hedged against currency changes, what is the amount the company will receive in pounds at the new exchange rate? a 27,36 . 3 b 22,80 . 3 c 55,00 . 0 d 25,58 . 1 2 points 1. QUESTION 38 With covered interest arbitrage: a the market must be out of equilibrium. . b the arbitrageur trades in both the spot and future currency . exchange markets. c a "riskless" arbitrage opportunity exists. . d all of the above . 2 points 1. QUESTION 39 Argentina's economic performance in the 1990s while their peso was pegged to the U.S. dollar can be characterized as ________ rates of inflation and ________ rates of unemployment. a low; high; . b low; . low c high; . low d high; . high 2 points 1. QUESTION 40 Peter Simpson thinks that the U.K. pound will cost $1.48/ in six months. A 6-month currency futures contract is available today at a rate of $1.44/. If Peter was to speculate in the currency futures market, and his expectations are correct, which of the following strategies would earn him a profit? a Buy a pound currency futures . contract. b Sell a pound currency futures . contract. c Sell pounds today. . d Sell pounds in six months. . 2 points 1. QUESTION 41 You hold a put option on yen is written with a strike price of 105.00/$. Which spot price maximizes your profit if you choose to exercise the option before maturity? a 105/ . $ b 110/ . $ c 115/ . $ d 100/ . $ 2 points QUESTION 42 1. A call option on ABC stock is bought for $3.00. This call option has a strike price of $30 and can be exercised in three months or less. If this option is exercise today when the stock price is $55, what is the net profit from buying this option? a . $3.0 0 b . $12. 00 c . $15. 00 d . $22. 00 2 points QUESTION 43 1. Which of the following is NOT a contract specification for currency futures trading on an organized exchange? a size of the contract . b last trading day . c maturity date . d All of the above are specified . 2 points QUESTION 44 1. Assume that a call option has an exercise price of $1.50/. At a spot price of $1.55/, the call option has: a a time value of . $0.00. b an intrinsic value of . $0.05. c an intrinsic value of . $0.00. d a time value of . $0.05. 2 points 1. QUESTION 45 An agreement to swap a fixed interest payment for a floating interest payment would be considered a/an: a currency . swap. b interest rate . swap. c forward swap. . d none of the . above. 2 points QUESTION 46 1. Futures contracts require that the purchaser deposit an initial sum as collateral. This deposit is called a: a margin. . b settlement. . c collateralized . deposit. d marked market . sum. 2 points 1. QUESTION 47 A foreign currency ________ gives the purchaser the right, not the obligation, to buy a given amount of foreign exchange at a fixed price per unit for a specified period. a swap . b forwar . d c option . d future . 2 points QUESTION 48 1. ________ is the active buying and selling of the domestic currency against foreign currencies. a Direct Intervention . b Indirect Intervention . c Foreign Direct . Investment d Federal Funding . 2 points 1. QUESTION 49 The ________ provides a means to account for international cash flows in a standardized and systematic manner. a International Fisher . Effect b parity conditions . c balance of . payments d asset approach . 2 points 1. QUESTION 50 ________ is defined as the spread of a crisis in one country to its neighboring countries and other countries with similar characteristics. a Capital market . liquidity b Political science . c Contagion . d Speculation