1) If assets selling in financial markets across countries are identical in terms of their return and risk characteristics, then investors would become indifferent towards holding their investment in funds in domestic or foreign assets because they tend to obtain the same return when it is converted in a common currency. This is known as

A) relative purchasing power parity.

B) interest rate parity.

C) the law of one price.

D) equilibrium.

2) Which of the following statements is true with respect to the CIP hypothesis?

A: The CIP hypothesis describes the equilibrium relationship between the spot exchange rate, the forward exchange rate, domestic interest rates and foreign interest rates.

B: The CIP hypothesis describes the equilibrium relationship between the actual and the interest parity forward rate.

C: The CIP hypothesis was originally developed by Keynes in the 1920s.

D: The CIP hypothesis describes the equilibrium relationship between the forward discount (premium) on the home (foreign) currency and the gross real interest rate differentials.

3)Consider the bid-offer quote of USD/AUD is 0.6000-0.6015 and USD/MXP is 0.0933-0.0935. What is the implied MXN/AUD cross rate?

A: MXP/AUD 10.6952-10.7181

B: MXP/USD 6.4200-6.4469

C: MXP/USD 6.43087-6.4331

D: MXP/USD 10.8520-10.9523

4) Dealer A quotes 0.6030-0.6050 for EUR/AUD exchange rate to Dealer B.

A: The price at which B is willing to sell the euro is EUR0.6030.

B: The price at which B is willing to sell the Australian dollar is EUR0.6050.

C: The price at which A is willing to sell the euro is EUR0.6050.

D: The price at which A is willing to sell the euro is EUR 0.6030.