精选国际金融FinanceTestBank8.docx
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精选国际金融FinanceTestBank8.docx
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精选国际金融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
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.
2
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
5%+3%=8%
SOLUTION:
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
3
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.
b.depreciate;3,11
c.
d.
ANS:
A
SOLUTION:
(1.08/1.03)
1=4.85%.
4
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.purchasingpowerparitywilloverestimatetheexchangeratechangeoftheBritishpoundinthefuture.
ANS:
CPTS:
1
25.Whichofthefollowingisindicatedbyresearchregardingpurchasingpowerparity(PPP)?
a.PPPclearlyholdsintheshortrun.
b.DeviationsfromPPParereducedinthelongrun.
c.PPPclearlyholdsinthelongrun.
d.Thereisnorelat
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