International Financial Management 8E - Eun - TBChapter 6

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1、ExamName___________________________________MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.1)Anarbitrageisbestdefinedas1)A)theactofsimultaneouslybuyingandsellingthesameorequivalentassetsorcommoditiesforthepurposeofmakingcert

2、ainguaranteedprofits.B)theactofsimultaneouslybuyingandsellingthesameorequivalentassetsorcommoditiesforthepurposeofmakingreasonableprofits.C)alegalconditionimposedbytheCFTC.D)noneoftheoptionsAnswer:ATopic:InterestRateParity2)InterestRateParity(IRP)isbestdefinedas2)

3、A)occurringwhenthecentralbankofacountrybringsitsdomesticinterestrateinlinewithitsmajortradingpartners.B)occurringwhenagovernmentbringsitsdomesticinterestrateinlinewithothermajorfinancialmarkets.C)anarbitrageconditionthatmustholdwheninternationalfinancialmarketsare

4、inequilibrium.D)noneoftheoptionsAnswer:CTopic:InterestRateParity3)WhenInterestRateParity(IRP)doesnothold3)A)thereareopportunitiesforcoveredinterestarbitrage.B)thereisusuallyahighdegreeofinflationinatleastonecountry.C)thefinancialmarketsareinequilibrium.D)thefinanc

5、ialmarketsareinequilibriumandthereareopportunitiesforcoveredinterestarbitrage.Answer:ATopic:InterestRateParity4)Supposeyouobserveaspotexchangerateof$1.0500/€.Ifinterestratesare5%APRin4)theU.S.and3%APRintheeurozone,whatistheno-arbitrage1-yearforwardrate?A)€1.0704/$

6、B)€1.0300/$C)$1.0300/€D)$1.0704/€Answer:DTopic:InterestRateParity15)Supposeyouobserveaspotexchangerateof$1.0500/€.Ifinterestratesare3percent5)APRintheU.S.and5percentAPRintheeurozone,whatistheno-arbitrage1-yearforwardrate?A)$1.0704/€B)$1.0300/€C)€1.0300/$D)€1.0704/

7、$Answer:BTopic:InterestRateParity6)Supposeyouobserveaspotexchangerateof$2.00/£.Ifinterestratesare5percentAPR6)intheU.S.and2percentAPRintheU.K.,whatistheno-arbitrage1-yearforwardrate?A)$2.0588/£B)£1.9429/$C)£2.0588/$D)$1.9429/£Answer:ATopic:InterestRateParity7)Afor

8、malstatementofIRPis7)1+i1+iF($/€)$F($/€)-S($/€)$A)=.B)=.S($/€)1+iS($/€)1+i€€1+iF($/€)€C)F($/€)-S($/€)=i-i.D)=.$€S($/€)1+i$Answer:ATopic:InterestRatePari