10) Which of the following statement(s) is/are true?

I. At year start, the spot rate was $1.50 = 1 and at year end, the spot rate is $1.45 = 1. This means the pound has appreciated.

II. If you want to hedge but worry about the counter party risk, then you should use the forward market rather than the future market.

III. Compare to the spot market, the forward market has less counterparty risk.

a) I only

b) II only

c) III only

d) I, II, and III

e) None of the above answers

11) How many the following statements are true regarding the Interest Rate Parity (IRP)?

I. If IRP holds then you can still make an arbitrage profit.

II. When IRP does not hold, assume no transaction costs, there are opportunities for covered interest arbitrage.

III. Relative to Purchasing Power Parity (PPP), IRP are violated (evidence against it) less often. IV. IRP involves law of one price while PPP involves investing between countries.

a) 0

b) 1

c) 2

d) 3

e) 4