ANSWER ALL PARTS!

1) If purchasing power parity existed in foreign exchange rates,

a. foreign exchange rates would remain constant.

b. goods and services would cost the same in terms of dollars everywhere in the world.

c. goods and services would not be traded across borders.

d. foreign exchange rates would be the same anywhere in the world markets.

2) A bank has a negative $GAP. If interest rates fall, the banks overall Net Interest Income will

a. fall.

b. rise.

c. not change.

3) Which of the following could be used to reduce a banks credit risk exposure?

I. Increase its loan to deposit ratio II. Increase its allowable concentration ratio III. Increase its required minimum credit score

IV. Participate in loans in other geographic areas

a. I and II.

b. I, II and III.

c. I, II and IV.

d. III and IV.