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Assume that the U.S. one-year interest rate is 3...

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Assume that the U.S. one-year interest rate is 3% and the one-year interest rate on Australian dollars is 6%. The U.S. expected annual inflation is 5%, while the Australian inflation is expected to be 7%. You have $100,000 to invest for one year and you believe that PPP holds. The spot exchange rate of an Australian dollar is $0.689. What will be the yield on your investment if you invest in the Australian market? Answer 6% 3% 4% 2% . 1 points Question 2 If interest rate parity holds, then the one-year forward rate of a currency will be ____ the predicted spot rate of the currency in one year according to the international Fisher effect. Answer greater than less than equal to answer is dependent on whether the forward rate has a discount or premium . 1 points Question 3 The interest rate in the U.K. is 7%, while the interest rate in the U.S. is 5%. The spot rate for the British pound is $1.50. According to the international Fisher effect (IFE), the British pound should adjust to a new level of: Answer $1.47. $1.53. $1.43. $1.57. . 1 points Question 4 The Fisher effect is used to determine the: Answer real inflation rate. real interest rate. real spot rate. real forward rate. . 1 points Question 5 Which of the following theories suggests that the percentage change in spot exchange rate of a currency should be equal to the inflation differential between two countries? Answer purchasing power parity (PPP). triangular arbitrage. international Fisher effect (IFE). interest rate parity (IRP). . 1 points Question 6 Given a home country and a foreign country, purchasing power parity (PPP) suggests that: Answer a home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate. a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate. a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate. . 1 points Question 7 According to the international Fisher effect, if Venezuela has a much higher nominal rate than other countries, its inflation rate will likely be ____ than other countries, and its currency will ____. Answer lower; strengthen lower; weaken higher; weaken higher; strengthen . 1 points Question 8 Which of the following is indicated by research regarding purchasing power parity (PPP)? Answer PPP clearly holds in the short run. Deviations from PPP are reduced in the long run. PPP clearly holds in the long run. There is no relationship between inflation differentials and exchange rate movements in the short run or long run. . 1 points Question 9 According to the IFE, if British interest rates exceed U.S. interest rates: Answer the British pound's value will remain constant. the British pound will depreciate against the dollar. the British inflation rate will decrease. the forward rate of the British pound will contain a premium. today's forward rate of the British pound will equal today's spot rate. . 1 points Question 10 Which of the following theories suggests the percentage change in spot exchange rate of a currency should be equal to the interest rate differential between two countries? Answer absolute form of PPP. relative form of PPP. international Fisher effect (IFE). interest rate parity (IRP). . 1 points Question 11 Assume that the inflation rate in Singapore is 3%, while the inflation rate in the U.S. is 8%. According to PPP, the Singapore dollar should ____ by ____%. Answer appreciate; 4.85 depreciate; 3,11 appreciate; 3.11 depreciate; 4.85 . 1 points Question 12 Assume that the international Fisher effect (IFE) holds between the U.S. and the U.K. The U.S. inflation is expected to be 5%, while British inflation is expected to be 3%. The interest rates offered on pounds are 7% and U.S. interest rates are 7%. What does this say about real interest rates expected by British investors? Answer real interest rates expected by British investors are equal to the interest rates expected by U.S. investors. real interest rates expected by British investors are 2 percentage points lower than the real interest rates expected by U.S. investors. real interest rates expected by British investors are 2 percentage points above the real interest rates expected by U.S. investors. IFE doesn't hold in this case because the U.S. inflation is higher than the British inflation, but the interest rates offered in both countries are equal. . 1 points Question 13 Which of the following theories suggests that the percentage difference between the forward rate and the spot rate depends on the interest rate differential between two countries? Answer purchasing power parity (PPP). triangular arbitrage. international Fisher effect (IFE). interest rate parity (IRP). . 1 points Question 14 Assume U.S. and Swiss investors require a real rate of return of 3%. Assume the nominal U.S. interest rate is 6% and the nominal Swiss rate is 4%. According to the international Fisher effect, the franc will ____ by about ____. Answer appreciate; 3% appreciate; 1% depreciate; 3% depreciate; 2% appreciate; 2% . 1 points Question 15 Assume that the one-year interest rate in the U.S. is 7% and in the U.K. is 5%. According to the international Fisher effect, British pound's spot exchange rate should ____ by about ____ over the year. Answer depreciate; 1.9% appreciate; 1.9% depreciate; 3.94% appreciate; 3.94% . 1 points Question 16 A fundamental forecast that uses multiple values of the influential factors is an example of: Answer sensitivity analysis. discriminant analysis. technical analysis. factor analysis. . 1 points Question 17 The following is not a limitation of technical forecasting: Answer It's not suitable for long-term forecasts of exchange rates. It doesn't provide point estimates or a range of possible future values. It cannot be applied to currencies that exhibit random movements. It cannot be applied to currencies that exhibit a continuous trend for short-term forecast. . 1 points Question 18 Assume that interest rate parity holds. The U.S. five-year interest rate is 5% annualized, and the Mexican five-year interest rate is 8% annualized. Today's spot rate of the Mexican peso is $.20. What is the approximate five-year forecast of the peso's spot rate if the five-year forward rate is used as a forecast? Answer $.131. $.226. $.262. $.140. $.174. . 1 points Question 19 Which of the following is not a method of forecasting exchange rate volatility? Answer using the absolute forecast error as a percentage of the realized value. using the volatility of historical exchange rate movements as a forecast for the future. using a time series of volatility patterns in previous periods. deriving the exchange rate's implied standard deviation from the currency option pricing model. . 1 points Question 20 Which of the following is not a limitation of fundamental forecasting? Answer uncertain timing of impact. forecasts are needed for factors that have a lagged impact. omission of other relevant factors from the model. possible change in sensitivity of the forecasted variable to each factor over time. . 1 points Question 21 Assume that the U.S. interest rate is 11 percent, while Australia's one-year interest rate is 12 percent. Assume interest rate parity holds. If the one-year forward rate of the Australian dollar was used to forecast the future spot rate, the forecast would reflect an expectation of: Answer depreciation in the Australian dollar's value over the next year. appreciation in the Australian dollar's value over the next year. no change in the Australian dollar's value over the next year. information on future interest rates is needed to answer this question. . 1 points Question 22 Assume that the forward rate is used to forecast the spot rate. The forward rate of the Canadian dollar contains a 6% discount. Today's spot rate of the Canadian dollar is $.80. The spot rate forecasted for one year ahead is: Answer $.860. $.848. $.740. $.752. . 1 points Question 23 If speculators expect the spot rate of the Canadian dollar in 30 days to be ____ than the 30-day forward rate on Canadian dollars, they will ____ Canadian dollars forward and put ____ pressure on the Canadian dollar forward rate. Answer lower; sell; upward lower; sell; downward higher; sell; upward higher; sell; downward . 1 points Question 24 Which of the following is not one of the major reasons for MNCs to forecast exchange rates? Answer to decide in which foreign market to invest the excess cash. to decide where to borrow at the lowest cost. to determine whether to require the subsidiary to remit the funds or invest them locally. to speculate on the exchange rate movements. . 1 points Question 25 Which of the following forecasting techniques would best represent the sole use of the pattern of historical currency values of the euro to predict the euro's future currency value? Answer fundamental forecasting. market-based forecasting. technical forecasting. mixed forecasting. . 1 points Question 26 The one-year forward rate of the British pound is $1.55, while the current spot rate is $1.60. Based on the forward rate, what is the expected percentage change in the British pound over the next year? Answer +5.0% ?3.1% +3.1% +3.2% . 1 points Question 27 If speculators expect the spot rate of the yen in 60 days to be ____ than the 60-day forward rate on the yen, they will ____ the yen forward and put ____ pressure on the yen's forward rate. Answer higher; buy; upward higher; sell; downward higher; sell; upward lower; buy; upward . 1 points Question 28 Assume that U.S. interest rate for the next three years is 5%, 6%, and 7% respectively. Also assume that Canadian interest rates for the next three years are 3%, 6%, 9%. The current Canadian spot rate is $.840. What is the approximate three-year forecast of Canadian dollar spot rate if the three-year forward rate is used as a forecast? Answer $.840 $.890 $.856 $.854 . 1 points Question 29 If the forward rate was expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then: Answer covered interest arbitrage is feasible. the international Fisher effect (IFE) is supported. the international Fisher effect (IFE) is refuted. the average absolute error from forecasting would equal zero. . 1 points Question 30 Small Corporation would like to forecast the value of the Cyprus pound (CYP) five years from now using forward rates. Unfortunately, Small is unable to obtain quotes for five-year forward contracts. However, Small observes that the five-year interest rate in the U.S. is 11%, while the Cyprus five-year interest rate is 15%. Based on this information, the Cyprus pound should ____ by ____% over the next five years. Answer appreciate; 16.22 depreciate; 16.22 appreciate; 6.66 depreciate; 6.66,Will you be able to get the answers by 12:30?

 

Paper#7236 | Written in 18-Jul-2015

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