1. Suppose China slows its buying of Treasuries, other things being equal:

1. US interest rates would probably increase, and so interest rates in Japan would also probably be higher.
2. Economic growth in China would increase.
3. US interest rates would probably increase, and so the dollar would probably be stronger than before the buying slowed.
4. US interest rates would probably increase, and the dollar would probably be weaker than before the buying slowed.

2. The current spot rate is BRL 5.75/$. The 2-year Brazil interest rate is 4%, while the US 2-year interest rate is 6%.

1. The BRL probably trades at a forward premium.
2. Interest rate parity holds between BRL and the dollar.
3. The dollar probably trades at forward premium.
4. The BRL is expected to weaken over the next two years.

3. If the home country maintains fixed exchange rate, then which of the following is/are true?

1. The Current Account of the BOP accounts is likely to be in surplus.
2. A trade deficit can lead to an increase of foreign-currency denominated assets held by the central bank.
3. A persistent trade surplus can lead to inflation.
4. The central bank use it reserves to maintain BOP equilibrium.

1. I
2. II, III and IV
3. I and II
4. III and IV

4. Which exchange rate regimes below are ranked from least flexible to most flexible?

1. Currency board, crawling peg, conventional fixed rate, floating.
2. Conventional fixed rate, dollarization, crawling peg, floating.
3. Currency board, no separate legal tender, pegged exchange rate within horizontal bands, free floating.
4. Stabilized arrangement, crawl-like arrangement, pegged exchange rate within horizontal bands, free floating.

5. Which of the following statements is true?

1. A country with high inflation needs to waken its currency to remain competitive.
2. A currency depreciation causes a country with a trade deficit to lose competitiveness.
3. A currency depreciation causes a country with a trade surplus to lose competitiveness.
4. Rising interest rates due to central bank actions tend to weaken currencies.