1. We live in a world of 4 countries, where all the people grow and eat potatoes. We have the following data:

a. Yes it does for all three countries and the PPP spot exchange rates are respectively MEP 400/BRC, APR 1,200/BRC and USD 1,400/BRC

b. Yes it does for Argentina and the US with PPP rates of BRC 1,333/ARP and BRC 1,429/USD respectively, while it doesnt hold for Mexico with a PPP rate of BRC 400/ MEP

c. Yes it does for the MEP in Mexico and the PPP spot rate is BRC 400/ MEP, while it doesnt for Argentina and the US with PPP rates of BRC 1,333/ARP and BRC 1,429/USD respectively.

d. No it doesnt hold for any of the three countries and the PPP spot exchange rates are respectively MEP 400/BRC, APR 1,200/BRC and USD 1,400/BRC

e. None of the above

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2. Refer to question one. The Argentine Peso (ARP) is_________ against the BRC *

a. undervalued by 9.977%

b. overvalued by 9.977%

c. undervalued by 11.083%

d. overvalued by 11.083%

e. None of the Above

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3. Refer to question one. We expect an annual inflation of 100% in Brazil, 12% in Mexico, 25% in Argentina, and 6% in the United States. According to Relative PPP, what are the expected spot rates (in BRC) one year from now? *

a. MEP 714.3/ BRC, ARP 1,920/BRC, USD 1,120/BRC

b. MEP 714.3/ BRC, ARP 1,920/BRC, USD 2,641.5/BRC

c. MEP 224/ BRC, ARP 750/BRC, USD 1,120/BRC

d. MEP 448/BRC, ARP 1,500/BRC, USD 1,484/BRC

e. None of the above.

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4. Zeina is travelling tomorrow, on June the 24th, to Istanbul. Her cousin who is already in Turkey told her that she can exchange 100$ for 1,082.05 TRY at the airport upon her arrival. She is taking a total of 10,000,000 LBP to cover her accommodation and purchases. Today, the USD traded for 14,997 LBP in the Lebanese black market. The TRY/USD exchange rate June the 24th: *

a. TRY 0.0924/ USD

b. TRY 10.8205/ USD

c. USD 10.8205/ TRY

d. TRY 1,0820/ USD

e. None of the above

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5. Refer to question 4. The cross rate between LBP and TRY on June the 24th is: *

a. LBP 1,385.98/TRY

b. TRY 0.000722/LBP

c. LBP 1,082.05/TRY

d. A & B

e. None of the above

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6. Refer to question 4. Are the 10,000,000 LBP going to be enough to cover the total trip expenses estimated for 7,000 TRY? *

a. No, and she will be needing an extra 215 TRY

b. No, and she will be needing an extra 20 USD

c. Yes, and she will have an extra 215 TRY

d. A & B

e. None of the above

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7. The 1-year interest rates are equal to 4.8% and 7.3% for USD and LBP respectively. The current spot rate is equal to LBP 3,990/USD. What would be the spot rate after 3 years if the international fisher effect holds? *

a. 4281.27

b. 4282.41

c. 4085.18

d. 6068.13

e. None of the above

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8. A Chinese student is studying the fluctuation of the Chinese Yuan against the Euro. He got the following information:

a. 1

b. 0.0001

c. 0.0003

d. 0.0004

e. None of the above

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9. Referring to question 8, the outright forward bid rates for 1, 3 and 6 months respectively are: *

a. 7.2416 / 7.2439 / 7.2469

b. 7.2416 / 7.2424 / 7.2431

c. 7.3901 / 7.4701 / 7.5401

d. 7.3901 / 7.6201 / 7.9201

e. None of the above.

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10. Referring to question 8, the outright forward ask rates for 1, 3 and 6 months respectively are: *

a. 7.2420 / 7.2426 / 7.2469

b. 7.2422 / 7.2446 / 7.2479

c. 7.2422 / 7.2428 / 7.2437

d. 7.4204 / 7.4804 / 7.5704

e. None of the above

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11. Referring to question 8, the mid rates for spot and 6 months forward are respectively: *

a. 7.24025 and 7.24340

b. 7.24010 and 7.24310

c. 7.24025 and 7.24310

d. 7.24240 and 7.24370

e. None of the Above

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12. Referring to question 8, which of the following statements is correct? *

a. the euro is selling at a discount of 0.087% against the Chinese Yuan for the 6 months maturity

b. the euro is selling at a premium of 0.13% against the Chinese Yuan for the 3 months maturity

c. the Euro is selling at a premium against the Chinese Yuan for all maturities

d. B & C

e. None of the Above

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13. An American investor with $5,000,000 USD is considering whether to invest abroad using an covered interest arbitrage strategy. For a maturity of 3 months, the dollar deposit interest rate is 3.4% in the United States, while the Euro deposit rate is 4.6% in the Euro area. The current spot exchange rate is 1.2730 $/ and the 3 months forward rate is 1.2820 $/. The euro is selling ___________ against the USD: *

a. at a discount of 2.83%

b. at a premium of 2.83%

c. at a premium of -2.83%

d. at a discount of -2.83%

e. None of the above

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14. Refer to question 13. In order to take the decision the investor must: *

a. compare the interest rates differential with the forward discount/ premium and make sure they are unequal to invest in the higher yielding currency

b. check if the interest rates differential is less than the forward discount/ premium and therefore invest in the higher yielding currency

c. check if the interest rates differential is greater than the forward discount/ premium and therefore invest in the higher yielding currency

d. check if the interest rates differential is greater than the forward discount/ premium and therefore invest in the lower yielding currency

e. None of the above

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15. Referring to question 13, and after studying the possible covered interest rate arbitrage, the investor will: *

a. borrow 5,000,000 USD and invest them in the American market at a 3.4% interest rate

b. Borrow the equivalent of 5,000,000$ in Euros and a place them at a 4.6% interest rate in Europe

c. Borrow 3,000,000 Euros, convert them in into US Dollars and invest the obtained sum at a 3.4% interest rate

d. Borrow the equivalent of 5,000,000 USD in Chinese Yuan then invest them on the European market

e. None of the above

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16. Refer to question 13. The expected result from the CIA is: *

a. a profit of $170,000

b. a profit of $266,975.65

c. a profit of $96,975.65

d. no profit nor loss for the interest rate parity is verified

e. None of the above

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17. According to the International Fisher Effect, if Lebanese interest rates exceed U.S. interest rates: *

a. the Lebanese pound's value will remain constant.

b. the Lebanese pound will depreciate against the dollar.

c. the Lebanese inflation rate will decrease.

d. the forward rate of the Lebanese pound will contain a premium.

e. None of the above

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18. Alex is an FX Trader with a $10,000,000 on hand. He detects the following rates.

a. yes, because the USD/GBP rate is greater than the EUR/GBP rate

b. yes, because the EUR/GBP rate is greater than the EUR/USD rate

c. yes, because the EUR/GBP cross rate is different than the actual EUR/GBP rate

d. no, this kind of transactions only leads to losses in term of the initial capital

e. None of the Above

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19. Referring to question 18, Alex is testing his first scenario, knowing he can choose one of two transaction paths. So he is going to trade his $10,000,000 for________ GBP, then the GBP amount for ________ EUR to finally recover a sum of__________ USD *

a. 6,654,245.409 / 5,110,395.061/ 5,888,908.805

b. 6,654,245.409 / 8,664,492.946 / 9,984,435.292

c. 15,028,000 / 11,541,356.27 / 10,015,588.97

d. 15,028,000 / 8,664,492.946 / 9,980,420.921

e. None of the Above

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20. Refer to question 18. The second strategy that he can adopt is described as follows: He will trade his $10,000,000 for________ EUR, then the EUR amount for ________ GBP and finally recover the sum of__________ USD *

a. 15,028,000 / 11,541,356.27/ 9,984,435.292

b. 8,678,000 / 6,664,618.693 / 4,434,800.834

c. 15,028,000 / 11,541,356.27 / 10,015,588.97

d. 8,678,000 / 6,664,618.693/ 10,015,588.97

e. None of the above

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21. Referring to question 18, as a result, and through triangular arbitrage: *

a. He will be making profits whatever path he chooses to take: $15,588.97

b. He will be losing $19,579.08 if he chooses to take path 1 and gaining $15,588.97 from path 2

c. He will be losing $15,564.71 if he chooses to take path 1 and gaining $15,588.97 from path 2

d. He will be gaining $15,564.71 if he chooses to take path 1 and losing $15,588.97 from path 2

e. None of the above.

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22. The Japanese Yen exchange rate is expecting a 10 pips climb against the USD. The spot rate is JPY 113.1441/USD. The expected future exchange rate is: *

a. JPY 113.1442/USD

b. JPY 113.1451/USD

c. JPY 113.1541/USD

d. JPY 113.2441/USD

e. None of the above

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23. The Fisher Open known as the international Fisher effect states that: *

a. a local currency will depreciate if the current local interest rate exceeds the current foreign interest rate.

b. a local currency will appreciate if the current local interest rate exceeds the current foreign interest rate.

c. a local currency will appreciate if the current local inflation rate exceeds the current foreign inflation rate.

d. a local currency will depreciate if the local home inflation rate exceeds the current foreign inflation rate.

e. None of the above

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24. If the American inflation rate is 10% per year and the Lebanese inflation rate is 90% per year, which of the following is true: *

a. The dollar will appreciate by 72.72% and the Lebanese pound will depreciate by the same value in one year.

b. The dollar will depreciate by 91.3% and the Lebanese pound will appreciate by 10.7% in one year.

c. The dollar will appreciate by 72.72% and the Lebanese pound will depreciate by 42.11% in one year.

d. the dollar will hold its same value while the Lebanese pound will depreciate by 90%

e. None of the above

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25. ________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency. *

a. Dealers; ask; bid

b. Dealers; bid; ask

c. Brokers; ask; bid

d. Brokers; bid; ask

e. None of the above

Brazil Mexico Argentina United States Price of 1 Kg of potatoes BRC 2000 MEP 5 ARP 1.5 USD 1.4 Exchange rate in BRC BRC 400/ MEP BRC 1,200/ARP BRC 1,400/USD Does the absolute purchasing power parity PPP hold for BRC in respect to the MEP, ARP and USD? CNY/EUR Spot 1 month forward 3 months forward 6 months forward Bid 7.2401 +15 +23 +30 Ask 7.2404 +18 +24 +33 The bid-ask spread on the 3 months forward rate is: Banks Spot rates Citibank USD 1.5028/GBP Yorkshire Bank EUR 1.3021/GBP Socit Gnrale EUR 0.8678/USD Can Alex make a profit from triangular arbitrage? a