国际金融英文版试题chapter5

1、INTERNATIONAL FINANCE Assignment Problems (5) Name: Student#: I. Choose the correct answer for the following questions (only correct answer) (3 credits for each question, total credits 3 x 20 = 60) 1. When the supply of and demand for a foreign exchange in the foreign exchange market are exactly the

2、 same, the exchange rate is the . A. real exchange rate B. effective exchange rate C. equilibrium exchange rate D. cross exchange rate 2. An increase in the demand for French goods and services will . A. induce a rightward shift in the demand for euro B. induce a leftward shift in the demand for eur

3、o C. result in a rightward movement along the demand curve for euro D. result in a leftward movement along the demand curve for euro 3. If U.S. demand for Japanese goods increases and Japan s demand for U.S. products also rises at the same time, which of the following can you conclude in this situat

4、ion? A. The U.S. dollar will appreciate against the yen. B. The U.S. dollar will depreciate against the yen. C. The U.S. dollar will not change relative to the yen. D. The U.S. dollar may appreciate, depreciate, or remain unchanged against the yen. 4. If the price of a pair of Nike sneakers costs $8

5、5 in U.S, and the price of the same sneakers is ?80 inP aris, the spot rate is $1.35 per euro, the euro . A. is correctly valued according to PPP B. is correctly valued according to relative PPP C. is undervalued according to PPP D. is overvalued according to PPP 5. If the expected exchange rate E (

6、SB/A) according to the relative purchasing power parity is lower than the spot exchange rate (SB/A), we may conclude that A. country B is expected to run huge BOP surplus with country A B. country A s interest rate is going to be lower than that of country Bs C. the expected inflation rate in countr

7、y A is higher than the expected inflation rate in country B D. the expected inflation rate in country A is lower than the expected inflation rate in country B 6. Assume that PPP holds in the long run. If the price of a tradable good is $20 in the U.S. and 100 pesos in Mexico; and the exchange rate i

8、s 7 pesos/$ right now, which of the following changes might we expect in the future? A. an increase in the price of the good in the U.S B. a decrease in the price of the good in Mexico C. an appreciation of the peso in nominal terms D. a depreciation of the peso in nominal terms 7. Which basket of g

9、oods would be most likely to exhibit absolute purchasing power parity? A. Highly tradable commodities, such as wheat B. The goods in the Consumer Price index C. Specialized luxury goods, which are subject to different tax rates across countries D. Locally produced goods, such as transportation servi

10、ces, which are not easily traded 8. The absolute purchasing power parity says that the exchange rate between the two currencies should be determined by the . A. relative inflation rate of the two currencies B. relative price level of the two countries C. relative interest rate of the two currencies

11、D. relative money supply of the two countries 9. According to the relative PPP, if country A s inflation rate is higher than country B inflation rate by 3%, . A. country A s currency should depreciate against country Bs currency by 3% B. country A s currency should appreciate against country Bs curr

12、ency by 3% C. it is hard to say whether country Asc urrency should appreciate or depreciate against country B s currency. The exchange rate is influenced by many factors D. none of the above is true 10. If the law of one price holds for a particular good, we may conclude that A. there is no trade ba

13、rriers for the good among the different nations B. the price of the good is the same ignoring the other expenses C. arbitrage for the good does not exist D. all of the above are true 11. An investor borrows money in one market, sells the borrowed money on the spot market, invests the proceeds of the

14、 sale in another place and simultaneously buys back the borrowed currency on the forward market. This is called . A. uncovered interest arbitrage B. covered interest arbitrage C. triangular arbitrage D. spatial arbitrage 12. Real return equalization across countries on similar financial instruments

15、is called A. interest rate parity B. uncovered interest parity C. forward parity D. real interest parity 13. In which of the following situations would a speculator wish to sell foreign currency on the forward market? 14. According to IRP, if the interest rate in country A is higher than that in cou

16、ntry B, the forward exchange rate, defined as F1A/B is expected to be . A. lower than the spot rate S0A/B B. the same as the spot rate S0A/B C. higher than the spot rate S0A/B D. necessary the same as the future spot rate S1A/B 15. For arbitrage opportunities to be practicable, . A. arbitragers must

17、 have instant access to quotes B. arbitragers must have instant access to executions C. arbitragers must be able to execute the transactions without an initial sum of money relying on their bank s credit standing D. All of the above must be true. 16. The states that the forward exchange rate quoted

18、at time 0 for delivery at time t is equal to what the spot rate is expected to be at time t. A. interest rate parity B. uncovered interest parity C. forward parity D. real interest parity 17. Assume expected value of the U.S. dollar in the future is lower than that now compared to the value of the J

19、apanese yen. The U.S. inflation rate must be higher than Japan s inflation raatec cording to . A. relative PPP B. Fisher equation C. International Fisher relation D. IRP 18. According to covered interest arbitrage if an investor purchases a five-year U.S. bond that has an annual interest rate of 5%

20、rather than a comparable British bond that has an annual interest rate of 6%, then the investor must be expecting the to at a rate at least of 1% per year over the next 5 years. A. British pound; appreciate B. British pound; revalue C. U.S. dollar; appreciate D. U.S. dollar; depreciate 19. Covered i

21、nterest arbitrage moves the market equilibrium because A. toward; investors are now more willing to invest in risky securities B. toward; purchasing a currency on the spot market and selling in the forward market narrows the differential between the two C. away from; purchasing a currency on the spo

22、t market and selling in the forward market increases the differential between the two D. away from; demand for the stronger currency forces up the interest rates on the weaker security 20. If the forward exchange rate is an unbiased predictor of the expected future spot rate, which of the following

23、is NOT true? A. The future spot rate will actually be equal to what the forward rate predicts B. The forward premium or discount reflects the expected change in the spot exchange rate. C. Speculative activity ensures that the forward rate does not diverge too far from the market s consensus expectat

24、ion. D. All of the above are true. II. Problems (40 credits) 1. The Argentine peso was fixed through a currency board at Ps1.00/$ throughout the 1990s. In January 2002 the Argentine peso was floated. On January 29, 2003, it was trading at Ps3.20/$. During that one year period Argentina s inflaotnio

25、n rate was 20% an annualized basis. Inflation in the United States during that same period was 2.2% annualized. (10 credits) a. What should have been the exchange rate in January 2003 if purchasing power parity held? b. By what percentage was the Argentine peso undervalued on an annualized basis? 2.

26、 Assume that the interest rate paid by an American borrower on a ten-year foreign bond is 10% if the bond is sold in Denmark and 7% if the bond is sold in the Netherland. Will the expected inflation rate in the Netherlands likely be higher than the expected inflation rate in Denmark? Will the Danish

27、 kroner be expected to increase in value against the Dutch guilder? Explain your answer. (5 credits) 3. Suppose S = $1.25/? and the 1-year forward rate is F = $1.20/? . The real interest rate on a riskless government security is 2 percent in both England and the United States. The U.S. inflation rat

28、e is 5 percent. (5 credits) a. What is England nso minal required rate of return on riskless government securities? b. What is England s inflation rate if the equilibrium relationships hold? 4. Akira Numata, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage

29、possibilities. He wants to invest $5,000,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes: (12 credits) 5. On a particular day, the spot rate between Czech koruna (CKR) and the U.S. dollar

30、is CKR30.35/$, while the interest rate on a one-year financial instrument in Czech is 7.5% and 3.5% in U.S. (8 credits) a. What is your expected spot exchange rate a year later? b. You re concerned your investment in the Czech Republic because of the economic uncertainty in that country. When you ex

31、pect the future value of the koruna, you require a risk premium of 2%. What is the expected future spot rate supposed to be? Answers to Assignment Problems (5) Part II 1. a. inflation differential (20% - 2.2%) = 17.8% U.S. should have appreciated by 17.8% Implied exchange rate 1(1 + 17.8%) = Ps1.178

32、/$ b. (1.178 3.2 ) / 3.2 = -63.19% 2. a. According to international Fisher equation: (1 + id) / (1 + if) = (1 + E Ef) id: interest rate in Denmark if: interest rate in Netherland d: Danish inflation rate f Dutch inflation rate Since (1 + id) / (1 + if) = (1 +10%)/(1 + 7%) 0 So, (1 + E d) / (1 + E f) 0, which means the expected inflation rate in Denmark would be greater than that in Netherland. b. If Danish inflation is higher than Dutch inflation, Danish kroner will be expected to decrease in value against the Dutch guilder. (relative PPP theory) 3. a. U.S. nominal interest rate 2% - 5%