What paradigm is used to define the futures price?

A: IRP

B: Hedge Ratio C: Black Scholes D: Risk Neutral Valuation

Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = 1.00 and the dollar-yen exchange rate is quoted at $1.00 = 120.

A: 1.25/1.00

B: 1.00/1.92 C: 192/1.00 D: 1.92/100

TheAmerican dollar to Eurospot exchange rate is $1.50/ and the 90-day forward premium is 10 percent. Find the 90-day forward price

A: $1.65/

B: $1.5375/ C: $1.9125/ D: None of the above

Nondollar currency transactions:

A: are priced by looking at the price that must exist to eliminate arbitrage.

B: allow for triangular arbitrage opportunities to keep the currency dealers employed. C: are only for poor people who don't have dollars. D: none of the above.

The efficient market hypothesis (EMH) states that:

A: markets tend to evolve to low transactions costs and speedy execution of orders.

B: current asset prices (e.g., exchange rates) fully reflect all the available and relevant information. C: current exchange rates cannot be explained by such fundamental forces as money supplies, inflation rates and so forth. D: none of the above.

Some commodities never enter into international trade. Examples include:

A: Nontradables

B: Haircuts C: Housing D: All of the above

Open interest in currency futures contracts:

A: tends to be greatest for the near-term contracts.

B: tends to be greatest for the longer-term contracts. C: typically decreases with the term to maturity of most futures contracts. D: a) and c).

The International Fisher Effect suggests that:

A: any forward premium or discount is equal to the expected change in the exchange rate.

B: any forward premium or discount is equal to the actual change in the exchange rate. C: the nominal interest rate differential reflects the expected change in the exchange rate. D: an increase (decrease) in the expected inflation rate in a country will cause a proportionate increase (decrease) in the interest rate in the country.

Generally unfavorable evidence on PPP suggests that:

A: substantial barriers to international commodity arbitrage exist.

B: tariffs and quotas imposed on international trade can explain at least some of the evidence. C: shipping costs can make it difficult to directly compare commodity prices. D: all of the above.

The price of a McDonald's Big Mac sandwich:

A: is about the same in the 120 countries that McDonald's does business in.

B: varies considerably across the world in dollar terms. C: supports PPP. D: none of the above.