国际金融英文版试题chapter5

INTERNATIONALFINANCE

AssignmentProblems(5)Name:Student#:

I.Choosethecorrectanswerforthefollowingquestions(onlycorrectanswer)(3creditsforeachquestion,totalcredits3x20=60)

1.Whenthesupplyofanddemandforaforeignexchangeintheforeignexchangemarketareexactlythesame,theexchangerateisthe__________.

A.realexchangerate

B.effectiveexchangerate

C.equilibriumexchangerate

D.crossexchangerate

2.AnincreaseinthedemandforFrenchgoodsandserviceswill__________.

A.inducearightwardshiftinthedemandforeuro

B.inducealeftwardshiftinthedemandforeuro

C.resultinarightwardmovementalongthedemandcurveforeuro

D.resultinaleftwardmovementalongthedemandcurveforeuro

3.IfU.S.demandforJapanesegoodsincreasesandJapan’sdemandforU.S.productsalsorisesatthesametime,whichofthefollowingcanyouconcludeinthissituation?

A.TheU.S.dollarwillappreciateagainsttheyen.

B.TheU.S.dollarwilldepreciateagainsttheyen.

C.TheU.S.dollarwillnotchangerelativetotheyen.

D.TheU.S.dollarmayappreciate,depreciate,orremainunchangedagainstthe

yen.

4.IfthepriceofapairofNikesneakerscosts$85inU.S,andthepriceofthesamesneakersis€80inParis,thespotrateis$1.35pereuro,theeuro__________.

A.iscorrectlyvaluedaccordingtoPPP

B.iscorrectlyvaluedaccordingtorelativePPP

C.isundervaluedaccordingtoPPP

D.isovervaluedaccordingtoPPP

5.IftheexpectedexchangerateE(SB/A)accordingtotherelativepurchasingpowerparityislowerthanthespotexchangerate(SB/A),wemayconcludethat__________.

A.countryBisexpectedtorunhugeBOPsurpluswithcountryA

B.countryA’sinterestrateisgoingtobelowerthanthatofcountryB’s

C.theexpectedinflationrateincountryAishigherthantheexpectedinflationrateincountryB

D.theexpectedinflationrateincountryAislowerthantheexpectedinflationrateincountryB

6.AssumethatPPPholdsinthelongrun.Ifthepriceofatradablegoodis$20intheU.S.and100pesosinMexico;andtheexchangerateis7pesos/$rightnow,whichofthefollowingchangesmightweexpectinthefuture?

A.anincreaseinthepriceofthegoodintheU.S

B.adecreaseinthepriceofthegoodinMexico

C.anappreciationofthepesoinnominalterms

D.adepreciationofthepesoinnominalterms

7.Whichbasketofgoodswouldbemostlikelytoexhibitabsolutepurchasingpowerparity?

A.Highlytradablecommodities,suchaswheat

B.ThegoodsintheConsumerPriceindex

C.Specializedluxurygoods,whicharesubjecttodifferenttaxratesacrosscountries

D.Locallyproducedgoods,suchastransportationservices,whicharenoteasilytraded

8.Theabsolutepurchasingpowerparitysaysthattheexchangeratebetweenthetwocurrenciesshouldbedeterminedbythe__________.

A.relativeinflationrateofthetwocurrencies

B.relativepricelevelofthetwocountries

C.relativeinterestrateofthetwocurrencies

D.relativemoneysupplyofthetwocountries

9.AccordingtotherelativePPP,ifcountryA’sinflationrateishigherthancountryB’sinflationrateby3%,__________.

A.countryA’scurrencyshoulddepreciateagainstcountryB’scurrencyby3%

B.countryA’scurrencyshouldappreciateagainstcountryB’scurrencyby3%

C.itishardtosaywhethercountryA’scurrencyshouldappreciateordepreciateagainstcountryB’scurrency.Theexchangerateisinfluencedbymanyfactors

D.noneoftheaboveistrue

10.Ifthelawofonepriceholdsforaparticulargood,wemayconcludethat__________.

A.thereisnotradebarriersforthegoodamongthedifferentnations

B.thepriceofthegoodisthesameignoringtheotherexpenses

C.arbitrageforthegooddoesnotexist

D.alloftheabovearetrue

11.Aninvestorborrowsmoneyinonemarket,sellstheborrowedmoneyonthespotmarket,investstheproceedsofthesaleinanotherplaceandsimultaneouslybuysbacktheborrowedcurrencyontheforwardmarket.Thisiscalled__________.

A.uncoveredinterestarbitrage

B.coveredinterestarbitrage

C.triangulararbitrage

D.spatialarbitrage

12.Realreturnequalizationacrosscountriesonsimilarfinancialinstrumentsiscalled__________.

A.interestrateparity

B.uncoveredinterestparity

C.forwardparity

D.realinterestparity

13.Inwhichofthefollowingsituationswouldaspeculatorwishtosellforeigncurrencyontheforwardmarket?

14.AccordingtoIRP,iftheinterestrateincountryAishigherthanthatincountryB,theforwardexchangerate,definedasF1A/Bisexpectedtobe__________.

A.lowerthanthespotrateS0A/B

B.thesameasthespotrateS0A/B

C.higherthanthespotrateS0A/B

D.necessarythesameasthefuturespotrateS1A/B

15.Forarbitrageopportunitiestobepracticable,__________.

A.arbitragersmusthaveinstantaccesstoquotes

B.arbitragersmusthaveinstantaccesstoexecutions

C.arbitragersmustbeabletoexecutethetransactionswithoutaninitialsumofmoneyrelyingontheirbank’screditstanding

D.Alloftheabovemustbetrue.

16.The__________statesthattheforwardexchangeratequotedattime0fordeliveryattimetisequaltowhatthespotrateisexpectedtobeattimet.

A.interestrateparity

B.uncoveredinterestparity

C.forwardparity

D.realinterestparity

17.AssumeexpectedvalueoftheU.S.dollarinthefutureislowerthanthatnowcomparedtothevalueoftheJapaneseyen.TheU.S.inflationratemustbehigherthanJapan’sinflationrateaccordingto__________.

A.relativePPP

B.Fisherequation

C.InternationalFisherrelation

D.IRP

18.Accordingtocoveredinterestarbitrageifaninvestorpurchasesafive-yearU.S.bondthathasanannualinterestrateof5%ratherthanacomparableBritishbondthathasanannualinterestrateof6%,thentheinvestormustbeexpectingthe__________to__________atarateatleastof1%peryearoverthenext5years.

A.Britishpound;appreciate

B.Britishpound;revalue

C.U.S.dollar;appreciate

D.U.S.dollar;depreciate

19.Coveredinterestarbitragemovesthemarket__________equilibriumbecause__________.

A.toward;investorsarenowmorewillingtoinvestinriskysecurities

B.toward;purchasingacurrencyonthespotmarketandsellingintheforwardmarketnarrowsthedifferentialbetweenthetwo

C.awayfrom;purchasingacurrencyonthespotmarketandsellingintheforwardmarketincreasesthedifferentialbetweenthetwo

D.awayfrom;demandforthestrongercurrencyforcesuptheinterestratesontheweakersecurity

20.Iftheforwardexchangerateisanunbiasedpredictoroftheexpectedfuturespotrate,whichofthefollowingisNOTtrue?

A.Thefuturespotratewillactuallybeequaltowhattheforwardratepredicts

B.Theforwardpremiumordiscountreflectstheexpectedchangeinthespotexchangerate.

C.Speculativeactivityensuresthattheforwardratedoesnotdivergetoofarfromthemarket’sconsensusexpectation.

D.Alloftheabovearetrue.

II.Problems(40credits)

1.TheArgentinepesowasfixedthroughacurrencyboardatPs1.00/$throughoutthe1990s.InJanuary2002theArgentinepesowasfloated.OnJanuary29,2003,itwastradingatPs3.20/$.DuringthatoneyearperiodArgentina’sinflationratewas20%onanannualizedbasis.InflationintheUnitedStatesduringthatsameperiodwas2.2%annualized.(10credits)

a.WhatshouldhavebeentheexchangerateinJanuary2003ifpurchasingpowerparityheld?

b.BywhatpercentagewastheArgentinepesoundervaluedonanannualizedbasis?

2.AssumethattheinterestratepaidbyanAmericanborroweronaten-yearforeignbondis10%ifthebondissoldinDenmarkand7%ifthebondissoldintheNetherland.WilltheexpectedinflationrateintheNetherlandslikelybehigherthantheexpectedinflationrateinDenmark?WilltheDanishkronerbeexpectedtoincreaseinvalueagainsttheDutchguilder?Explainyouranswer.(5credits)

3.SupposeS=$1.25/₤andthe1-yearforwardrateisF=$1.20/₤.Therealinterestrateonarisklessgovernmentsecurityis2percentinbothEnglandandtheUnitedStates.TheU.S.inflationrateis5percent.(5credits)

a.WhatisEngland’snominalrequiredrateofreturnonrisklessgovernmentsecurities?

b.WhatisEngland’sinflationrateiftheequilibriumrelationshipshold?

4.AkiraNumata,aforeignexchangetraderatCreditSuisse(Tokyo),isexploringcoveredinterestarbitragepossibilities.Hewantstoinvest$5,000,000oritsyenequivalent,inacoveredinterestarbitragebetweenU.S.dollarsandJapaneseyen.Hefacedthefollowingexchangerateandinterestratequotes:(12credits)

5.Onaparticularday,thespotratebetweenCzechkoruna(CKR)andtheU.S.dollarisCKR30.35/$,whiletheinterestrateonaone-yearfinancialinstrumentinCzechis

7.5%and3.5%inU.S.(8credits)

a.Whatisyourexpectedspotexchangerateayearla