Suppose you observe a spot exchange rate of $1.0500/. If interest rates are 5% per annum in the U.S. and 3% per annum in the euro zone, what is the no-arbitrage one-year forward rate?

Multiple Choice

1- 1.0704/$

2- $1.0704/

3- 1.0300/$

4- $1.0300/

The Nestl Corporation, a well-known Swiss MNC, used to issue two different classes of common stock, bearer shares and registered shares, and foreigners were allowed to hold only

Multiple Choice

1- registered shares.

2- bearer shares.

3- voting shares.

4- convertible shares.

Although the world economy is much more integrated today than was the case 10 or 20 years ago, a variety of barriers still hamper free movements of people, goods, services, and capital across national boundaries. These barriers include

Multiple Choice

1- legal restrictions.

2- excessive transportation costs.

3- information asymmetry.

4- all of the options

Privatization is often seen as a cure for bureaucratic inefficiency and waste; some economists estimate that privatization improves efficiency and reduces operating costs by as much as

Multiple Choice

1- 5 percent.

2- 10 percent.

3- 15 percent.

4- 20 percent.

Suppose you observe the following exchange rates: 1 = $1.60 and 1 = $2.00. Calculate the euro-pound cross-rate.

Multiple Choice

1- 1.3333 = 1.00

2- 1.3333 = 1.00

3- 3.00 = 1

4- 1.25 = 1.00

Most foreign exchange transactions are for

Multiple Choice

1- intervention by central banks.

2- interbank trades between international banks or nonbank dealers.

3- retail trade.

4- purchase of hard currencies.

The current spot exchange rate is $1.55/ and the three-month forward rate is $1.50/. You enter into a short position on 1,000. At maturity, the spot exchange rate is $1.60/. How much have you made or lost?

Multiple Choice

1- Loss of $100

2- Gain of 100

3- Loss of $50

4- Gain of $150

In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/ bid-ask quote of $1.2519-$1.2523. The currency dealer would likely quote that as __________.

Multiple Choice

1- 19-23

2- 23-19

3- 4 points

4- none of the options

The law of one price (LOP) is referring to

Multiple Choice

1- a legal condition imposed by the U.S. Commodity Futures Trading Commission.

2- the same or equivalent things trading at the same price across different locations or markets, precluding profitable arbitrage opportunities.

3- the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain guaranteed profits.

4- the composition of a standard commodity basket.

Suppose that the annual interest rate is 2.0 percent in the United States and 4 percent in Germany, and that the spot exchange rate is $1.60/ and the forward exchange rate, with one-year maturity, is $1.58/. Assume that an arbitrager can borrow up to $1,000,000 or 625,000. If an astute trader finds an arbitrage opportunity, what is the net cash flow in one year?

Multiple Choice

1- $238.65

2- $14,000

3- $46,207

4- $7,000