TO. The indirect quotation is: a. The value of a foreign currency in dollars. b. The number of units of a foreign currency per one dollar c. The value of a foreign currency in euros. d. The number of units of a foreign currency per one euro II. A primary result of the Bretton Woods Agreement was: 3) The establishment of the European Monetary System (EMS). b) Establishing specific rules for when tariffs and quotas could be imposed by governments. Establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially ser values. d) Establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary). WY. Zealand dollar is S.33 necessary) 13. Assume the bid rate of a New Zealand dollar is 5.33 while the ask rate is $.335 at Bank X. Assume the bid rate of the New Zealand dollar is S.33 while the ask rate is S.325 at Bank Y. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with? a) S15,385 b) $15.625 c) $22,136 D $3,250 13. Assume that interest rate parity holds, and the curo's interest rate is 9% while the U.S. interest rate is 12%. Then the euro's interest rate increases to 11% while the U.S. interest rate remains the same. As a result of the increase in the interest rate on euros, the euro's forward will in order to maintain interest rate parity. a) Discount; increase b) Discount; decrease c) Premium; increase d) Premium; decrease A and d Premium, decrease 14. Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries? a) If Country As inflation rate exceeds Country inflation rate, Country A's currency will weaken. b) If Country As interest rate exceeds Country By inflation rate, Country A's currency will weaken. If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen d) If Country B's inflation rate exceeds Country As inflation rate, Country A's currency will weaken. 15. If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to hold: a) The value of the curo would often appreciate against the dollar. b) The value of the euro would often depreciate against the dollar c) The value of the euro would remain constant most of the time. D The value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation Part 2
