Question 15:

Which of the following statements is FALSE?

A. A currency forward is usually written between two firms, and it fixes a currency exchange rate for a transaction that will occur at a future date.

B. When the interest rate differs across countries, investors have an incentive to borrow in the

lowinterest rate currency and invest in the high interest rate currency.

C. By entering into a currency forward contract, a firm can lock in an exchange rate in advance and reduce or eliminate its exposure to fluctuations in a currency's value.

D. The covered interest parity equation states that the difference between the forward and spot exchange rates is related to the interest rate differential between the currencies.

Question 16:

Which of the following statements is FALSE?

A. In a standard interest rate swap, one party agrees to pay coupons based on a fixed interest rate in exchange for receiving coupons based on the prevailing market interest rate during each coupon period.

B. The swap contractlike forward and futures contractsis typically structured as a

"zerocost" security.

C. If shortterm interest rates were to fall while longterm rates remained stable, then

shortterm securities would fall in value relative to longterm securities, despite their shorter duration.

D. An interest rate swap is a contract entered into with a bank, much like a forward contract, in which the firm and the bank agree to exchange the coupons from two different types of loans.