Essay International Finance Mcq

6299 Words Jul 6th, 2013 26 Pages
1. Assume the current U.S. dollar-British spot rate is 0.6993£/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%, what is the approximate forward exchange rate for 360 days? A) 1.42£/$ B) 1.43£/$ C) 0.6993£/$ D) 0.7060£/$ E) 0.6927£/$ Answer: D
2: You are given the following exchange rate quotes in Sydney:
|USD/AUD |0.5366 |
|AUD/EUR |1.6428 |
|USD/EUR |0.8782 |
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C*: The interest rate differential and forward spread are positive and the interest differential is lower than the spread. D: The interest rate differential is positive while the spread is negative. E: B and C.
10. Under which of the following conditions will inward arbitrage be triggered? A: The interest rate differential and forward spread are positive and the differential is lower than the spread. B*: The interest rate differential and forward spread are negative and the absolute value of the interest differential is lower than the absolute value of the spread. C: The interest rate differential and forward spread are negative and the absolute value of the interest differential is greater than the absolute value of the spread. D: The interest rate differential is negative while the spread is positive. E: none of the above.
11. Outward covered arbitrage does not cause: A: a rise in the domestic interest rate. B: a fall in the foreign interest rate. C: a fall in the forward exchange rate. D*: a fall in the spot exchange rate. E: C and D.
12: Inward covered arbitrage does not cause: A: a fall in the domestic interest rate. B: a rise in the foreign interest rate. C*: a rise in the spot exchange rate.

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