If the spot exchange rate between the Japanese yen and U.S dollar is yen 106/$, and the forward rate is yen 103/$ then the:

a.Forward rate is incorrectly priced

b.$ is selling forward at the premium

c.$ is selling forward at a discount

d.Yen us selling forward at a discount

e.None of these answers are correct

Which of the following is a true statement about trade deflection?

a.Trade deflection is no longer possible if the countries in the free trade area move to customs union

b.Rules of origin eliminate the potential for trade deflection

c.All of the answers are correct

d.Trade deflection is different, less important, than trade diversion

e.It can occur in a free trade area where each country can set its own trade policy with external countries

If you look at a 30-day forward rate between two currencies (currencies A and B), and currency A is selling at a forward discount, then which of the following is true?

a.The value of currency B is expected to rise

b.PPP does not hold in the spot market

c.The value of currency A is expected to fall

d.All of the answers are correct

e.There is transaction risk associated with currency A