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WorksheetsRevision quiz 1
Total questions: 15
Worksheet time: 8mins
A forward contract to deliver British pounds for U.S. dollars could be described either as ________ or ________.
buying dollars forward; buying pounds forward.
selling pounds forward; selling dollars forward.
selling pounds forward; buying dollars forward.
selling dollars forward; buying pounds forward.
The current U.S. dollar-yen spot rate is 125¥/$. If the 90-day forward exchange rate is 127 ¥/$ then the yen is selling at a per annum ________ of ________.
premium; 1.57%
premium; 6.30%
discount; 1.57%
discount; 6.30%
Two general conclusions can be made from the empirical tests of purchasing power parity (PPP):
PPP holds up well over the short run but poorly for the long run, and the theory holds better for countries with relatively low rates of inflation.
PPP holds up well over the short run but poorly for the long run, and the theory holds better for countries with relatively high rates of inflation.
PPP holds up well over the long run but poorly for the short run, and the theory holds better for countries with relatively low rates of inflation.
PPP holds up well over the long run but poorly for the short run, and the theory holds better for countries with relatively high rates of inflation.
Imports have the potential to lower a country's inflation rate because of each of the following EXCEPT:
The higher prices of foreign goods spurs domestic competitors to cut prices.
The import of lower priced services limits what domestic competitors can charge for services.
The import of lower priced goods limits what domestic competitors can charge for goods.
All of the above
The two major concerns about foreign direct investment are:
National defense and taxes.
Who controls the assets and who receives the profits.
Who receives the profits and taxes.
Who pays the taxes and who receives the taxes.
The theory that suggests specialization by country can increase worldwide production is:
the theory of comparative advantage.
the theory of purchasing power parity
The international Fisher effect.
The theory of foreign direct investment
Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?
An American tourist purchases cheese in Milwaukee, Wisconsin.
The U.S. subsidiary of a British firm pays profits (dividends) back to its parent firm in London.
A Canadian lumber baron purchases a U.S. corporate bond through an investment broker in
Seattle.
All of the above are considered BOP transactions.
An American tourist purchases a leather jacket while in Italy. Which of the following statements is true?
The leather purchase would be considered an import for the U.S. BOP.
This transaction would be properly accounted for in the Current Account of the U.S. BOP.
The leather purchase is considered an import of a good, and thus, considered part of the balance of trade as well.
All of these statements are true.
The financial account consists COMPLETELY of which four components?
stock investment, bond investment, derivative investment, and mutual fund investment
direct investment, stock investment, net financial derivatives, and bond investment
direct investment, portfolio investment, net financial derivatives, and other asset investment
mutual fund investment, portfolio investment, derivative investment, and stock investment
The following is an example of an American term foreign exchange quote:
$20/£
€0.85/$
¥100/€
¥100/$
The U.S. dollar suddenly changes in value against the euro moving from an exchange rate of $0.8909/euro to $0.8709/€. Thus, the dollar has ________ by ________.
appreciated; 2.30%
depreciated; 2.30%
appreciated; 2.24%
depreciated; 2.24%
A ________ is an exchange rate quoted today for settlement at some time in the future.
spot rate
forward rate
currency rate
yield curve
________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.
Dealers; ask; bid
Dealers; bid; ask
Brokers; ask; bid
Brokers; bid; ask
If the current exchange rate is 113 Japanese yen per U.S. dollar, the price of a Big Mac hamburger in the United States is $3.41, and the price of a Big Mac hamburger in Japan is 280 yen, then other things equal, the Big Mac hamburger in Japan is:
correctly priced.
under priced.
over priced.
There is not enough information to determine if the price is appropriate or not.
One year ago the spot rate of U.S. dollars for Canadian dollars was $1/C$1. Since that time the rate of inflation in the U.S. has been 4% smaller than that in Canada. Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Canadian dollars should be approximately:
$0.96/C$
$1/C$
$1.04/C$
Relative PPP provides no guide for this type of question.
