国际金融FinanceTestBank8.docx
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国际金融FinanceTestBank8.docx
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国际金融FinanceTestBank8
Chapter8—RelationshipsamongInflation,InterestRates,andExchangeRates
1.Assumeatwo-countryworld:
CountryAandCountryB.Whichofthefollowingiscorrectaboutpurchasingpowerparity(PPP)asrelatedtothesetwocountries?
a.
IfCountryA'sinflationrateexceedsCountryB'sinflationrate,CountryA'scurrencywillweaken.
b.
IfCountryA'sinterestrateexceedsCountryB'sinflationrate,CountryA'scurrencywillweaken.
c.
IfCountryA'sinterestrateexceedsCountryB'sinflationrate,CountryA'scurrencywillstrengthen.
d.
IfCountryB'sinflationrateexceedsCountryA'sinflationrate,CountryA'scurrencywillweaken.
ANS:
APTS:
1
2.Givenahomecountryandaforeigncountry,purchasingpowerparity(PPP)suggeststhat:
a.
ahomecurrencywilldepreciateifthecurrenthomeinflationrateexceedsthecurrentforeigninterestrate.
b.
ahomecurrencywillappreciateifthecurrenthomeinterestrateexceedsthecurrentforeigninterestrate.
c.
ahomecurrencywillappreciateifthecurrenthomeinflationrateexceedsthecurrentforeigninflationrate.
d.
ahomecurrencywilldepreciateifthecurrenthomeinflationrateexceedsthecurrentforeigninflationrate.
ANS:
DPTS:
1
3.TheinternationalFishereffect(IFE)suggeststhat:
a.
ahomecurrencywilldepreciateifthecurrenthomeinterestrateexceedsthecurrentforeigninterestrate.
b.
ahomecurrencywillappreciateifthecurrenthomeinterestrateexceedsthecurrentforeigninterestrate.
c.
ahomecurrencywillappreciateifthecurrenthomeinflationrateexceedsthecurrentforeigninflationrate.
d.
ahomecurrencywilldepreciateifthecurrenthomeinflationrateexceedsthecurrentforeigninflationrate.
ANS:
APTS:
1
4.Becausethereareavarietyoffactorsinadditiontoinflationthataffectexchangerates,thiswill:
a.
reducetheprobabilitythatPPPshallhold.
b.
increasetheprobabilitythatPPPshallhold.
c.
increasetheprobabilitytheIFEwillhold.
d.
BandC
ANS:
APTS:
1
5.Becausetherearesometimesnosubstitutesfortradedgoods,thiswill:
a.
reducetheprobabilitythatPPPshallhold.
b.
increasetheprobabilitythatPPPshallhold.
c.
increasetheprobabilitytheIFEwillhold.
d.
BandC
ANS:
APTS:
1
6.AccordingtotheIFE,ifBritishinterestratesexceedU.S.interestrates:
a.
theBritishpound'svaluewillremainconstant.
b.
theBritishpoundwilldepreciateagainstthedollar.
c.
theBritishinflationratewilldecrease.
d.
theforwardrateoftheBritishpoundwillcontainapremium.
e.
today'sforwardrateoftheBritishpoundwillequaltoday'sspotrate.
ANS:
BPTS:
1
7.Givenahomecountryandaforeigncountry,theinternationalFishereffect(IFE)suggeststhat:
a.
thenominalinterestratesofbothcountriesarethesame.
b.
theinflationratesofbothcountriesarethesame.
c.
theexchangeratesofbothcountrieswillmoveinasimilardirectionagainstothercurrencies.
d.
noneoftheabove
ANS:
DPTS:
1
8.Givenahomecountryandaforeigncountry,purchasingpowerparitysuggeststhat:
a.
theinflationratesofbothcountrieswillbethesame.
b.
thenominalinterestratesofbothcountrieswillbethesame.
c.
AandB
d.
noneoftheabove
ANS:
DPTS:
1
9.IfinterestratesontheeuroareconsistentlybelowU.S.interestrates,thenfortheinternationalFishereffect(IFE)tohold:
a.
thevalueoftheeurowouldoftenappreciateagainstthedollar.
b.
thevalueoftheeurowouldoftendepreciateagainstthedollar.
c.
thevalueoftheeurowouldremainconstantmostofthetime.
d.
thevalueoftheeurowouldappreciateinsomeperiodsanddepreciateinotherperiods,butonaveragehaveazerorateofappreciation.
ANS:
APTS:
1
10.IftheinternationalFishereffect(IFE)didnotholdbasedonhistoricaldata,thenthissuggeststhat:
a.
somecorporationswithexcesscashcanlockinaguaranteedhigherreturnonfutureforeignshort-terminvestments.
b.
somecorporationswithexcesscashcouldhavegeneratedprofitsonaveragefromcoveredinterestarbitrage.
c.
somecorporationswithexcesscashcouldhavegeneratedhigherprofitsonaveragefromforeignshort-terminvestmentsthanfromdomesticshort-terminvestments.
d.
mostcorporationsthatconsistentlyinvestinforeignshort-terminvestmentswouldhavegeneratedthesameprofits(onaverage)asfromdomesticshort-terminvestments.
ANS:
CPTS:
1
11.Underpurchasingpowerparity,thefuturespotexchangerateisafunctionoftheinitialspotrateinequilibriumand:
a.
theincomedifferential.
b.
theforwarddiscountorpremium.
c.
theinflationdifferential.
d.
noneoftheabove
ANS:
CPTS:
1
12.AccordingtotheinternationalFishereffect,ifU.S.investorsexpecta5%rateofdomesticinflationoveroneyear,anda2%rateofinflationinEuropeancountriesthatusetheeuro,andrequirea3%realreturnoninvestmentsoveroneyear,thenominalinterestrateonone-yearU.S.Treasurysecuritieswouldbe:
a.
2%.
b.
3%.
c.
-2%.
d.
5%.
e.
8%.
ANS:
E
SOLUTION:
5%+3%=8%
PTS:
1
13.AccordingtotheinternationalFishereffect,ifinvestorsinallcountriesrequirethesamerealrateofreturn,thedifferentialinnominalinterestratesbetweenanytwocountries:
a.
followstheirexchangeratemovement.
b.
isduetotheirinflationdifferentials.
c.
iszero.
d.
isconstantovertime.
e.
CandD
ANS:
BPTS:
1
14.AssumethatU.S.andBritishinvestorsrequirearealreturnof2%.IfthenominalU.S.interestrateis15%,andthenominalBritishrateis13%,thenaccordingtotheIFE,theBritishinflationrateisexpectedtobeabout____theU.S.inflationrate,andtheBritishpoundisexpectedto____.
a.
2percentagepointsabove;depreciatebyabout2%
b.
3percentagepointsabove;depreciatebyabout3%
c.
3percentagepointsbelow;appreciatebyabout3%
d.
3percentagepointsbelow;depreciatebyabout3%
e.
2percentagepointsbelow;appreciatebyabout2%
ANS:
EPTS:
1
15.AssumeU.S.andSwissinvestorsrequirearealrateofreturnof3%.AssumethenominalU.S.interestrateis6%andthenominalSwissrateis4%.AccordingtotheinternationalFishereffect,thefrancwill____byabout____.
a.
appreciate;3%
b.
appreciate;1%
c.
depreciate;3%
d.
depreciate;2%
e.
appreciate;2%
ANS:
EPTS:
1
16.AssumethattheU.S.andChilenominalinterestratesareequal.Then,theU.S.nominalinterestratedecreaseswhiletheChileannominalinterestrateremainsstable.AccordingtotheinternationalFishereffect,thisimpliesexpectationsof____thanbefore,andthattheChileanpesoshould____againstthedollar.
a.
lowerU.S.inflation;depreciate
b.
lowerU.S.inflation;appreciate
c.
higherU.S.inflation;depreciate
d.
higherU.S.inflation;appreciate
ANS:
APTS:
1
17.AccordingtotheinternationalFishereffect,ifVenezuelahasamuchhighernominalratethanothercountries,itsinflationratewilllikelybe____thanothercountries,anditscurrencywill____.
a.
lower;strengthen
b.
lower;weaken
c.
higher;weaken
d.
higher;strengthen
ANS:
CPTS:
1
18.Ifinterestrateparityholds,thentheone-yearforwardrateofacurrencywillbe____thepredictedspotrateofthecurrencyinoneyearaccordingtotheinternationalFishereffect.
a.
greaterthan
b.
lessthan
c.
equalto
d.
answerisdependentonwhethertheforwardratehasadiscountorpremium
ANS:
CPTS:
1
19.TheFishereffectisusedtodeterminethe:
a.
realinflationrate.
b.
realinterestrate.
c.
realspotrate.
d.
realforwardrate.
ANS:
BPTS:
1
20.LatinAmericancountrieshavehistoricallyexperiencedrelativelyhighinflation,andtheircurrencieshaveweakened.Thisinformationissomewhatconsistentwiththeconceptof:
a.
interestrateparity.
b.
locationalarbitrage.
c.
purchasingpowerparity.
d.
theexchangeratemechanism.
ANS:
CPTS:
1
21.AssumethattheinflationrateinSingaporeis3%,whiletheinflationrateintheU.S.is8%.AccordingtoPPP,theSingaporedollarshould____by____%.
a.
appreciate;4.85
b.
depreciate;3,11
c.
appreciate;3.11
d.
depreciate;4.85
ANS:
A
SOLUTION:
(1.08/1.03)-1=4.85%.
PTS:
1
22.TheinflationrateintheU.S.is3%,whiletheinflationrateinJapanis10%.ThecurrentexchangeratefortheJapaneseyen(¥)is$0.0075.AftersupplyanddemandfortheJapaneseyenhasadjustedinthemannersuggestedbypurchasingpowerparity,thenewexchangeratefortheyenwillbe:
a.
$0.0076.
b.
$0.0073.
c.
$0.0070.
d.
$0.0066.
ANS:
C
SOLUTION:
(1.03/1.10)⨯$.0075=$.0070
PTS:
1
23.AssumethattheU.S.inflationraterateishigherthantheNewZealandinflationrate.ThiswillcauseU.S.consumersto____theirimportsfromNewZealandandNewZealandconsumersto____theirimportsfromtheU.S.Accordingtopurchasingpowerparity(PPP),thiswillresultina(n)____oftheNewZealanddollar(NZ$).
a.
reduce;increase;appreciation
b.
increase;reduce;appreciation
c.
reduce;increase;depreciation
d.
reduce;increase;appreciation
ANS:
BPTS:
1
24.ThefollowingregressionanalysiswasconductedfortheinflationrateinformationandexchangerateoftheBritishpound:
Regressionresultsindicatethata0=0anda1=2.Therefore:
a.
purchasingpowerparityholds.
b.
purchasingpowerparityoverestimatedtheexchangeratechangeduringtheperiodunderexamination.
c.
purchasingpowerparityunderestimatedtheexchangeratechangeduringtheperiodunderexamination.
d.
purchasingpowerp
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