6. Financial institutions such as banks and other dealers in foreign exchange employ professional _______________ who look for price discrepancies and work to exploit them from their computers.

a. Investors

b. Speculators

c. Arbitrageurs

d. Hedgers

7. True/False. For any three currencies that are freely convertible in competitive markets, it is enough to know the exchange rates between any two pairs of them in order to know the third.

8. When the risk-free interest rate rises, the prices of fixed-income securities will:

a. Definitely go up

b. Probably go up

c. Definitely go down

d. Probably go down

9. The ______________ is the discount rate which makes the present value of the bonds stream of promised cash payments equal to its price.

a. Coupon rate

b. Current yield

c. Yield to maturity

d. Internal Rate of Return (IRR)

10. For premium bonds, the yield to maturity is:

a. Always greater than the current yield

b. Always less than the current yield

c. Always equal to the current yield

d. Possibly either greater or less than the current yield since that is unrelated to whether or not it is a premium bond.