1. Suppose prices in Europe decrease. If dollar prices are constant and with no change in the

nominal exchange rate, the euro has undergone a

A) Real appreciation

B) Real depreciation

C) Nominal appreciation

D) Nominal depreciation

2. Which best describes a credit default swap?

A) It is designed to reduce interest-rate risk.

B) The issuer receives payments from the buyer in return for agreeing to make payments to the

buyer if the underlying security goes into default.

C) Issuers are taking out insurance in case of default.

D) It represents a way for the issuer to establish its creditworthines

3. If a bank wants place a bet on interest rate going down in the future, the bank will

A) Enter an interest rate swap contract where it pays a fixed interest rate

B) Enter an interest rate swap contract where it pays a floating interest rate

C) Sell futures contract on Treasury bills

D) None of the above

4.A key reason that firms and financial institutions might participate in an interest rate swap is

A) the low information costs of swaps compared with other derivative contracts.

B) to transfer interest rate risk to parties that are more willing to bear it.

C) the greater liquidity of swaps compared with other derivative contracts.

D) the favorable tax implications of swaps compared with other derivative contracts