10) Which of the following would cause the nominal exchange rate to appreciate? A) The real exchange rate depreciates. B) The government budget deficit decreases. C) The domestic inflation rate increases. D) The domestic inflation rate decreases. 20) The risk that either party in a financial transaction fails to meet its obligation is called: A) gap risk B) counterparty risk C) currency risk D) leverage risk 21) Banks experience interest rate risk when: A) loans are not repaid on time B) changes in interest rates cause bank profits to fluctuate C) asymmetric information exists D) investments have high transaction costs 22) Forward transactions originated in the market for: A) agricultural and other commodities B) U.S. Treasury securities C) common stocks D) commercial paper 23) The era of bank panies in the United States effectively ended: A) with the establishment of the Federal Reserve System in 1913 B) when dollars became convertible to gold C) when hedging of currencies became popular D) with the creation of the FDIC in 1934 24) Commercial banks may use interest rate swaps to: A) hedge inflation B) decrease default risk C) reduce gap risk D) borrow reserves 25) All of the following are roles of a derivative exchange EXCEPT: A) maintaining margin requirements on futures contracts B) reducing the default risk on forward contracts C) performing daily mark-to-market D) reducing the concern of the creditworthiness of market participants