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FINM3403PracticeMultipleChoiceQuestions1.Afixedexchangerateregime(a)forcesacountrytogiveupfreeinternationalflowsofcapital.(b)forcesacountrytoabandonindependentmonetarypolicy(c)caneliminateexchangerateuncertainty(d)isthemodelusedbytheU.S.FederalReserve.2.IftheexchangeratebetweentheAustraliandollarandtheUSdollarisexpressedindirectquotationfromanAustralianperspective,thenariseintheexchangerateimplies(a)appreciationoftheUSdollar.(b)depreciationoftheUSdollar.(c)appreciationoftheAustraliandollar.(d)(b)and(c).3.IftheAUD/USDexchangeratedeclinesfrom1.2500to1.2430,thenthefallisequalto(a)70points.(b)7000pips.(c)700points.(d)70pips.4.BankXYXquotes1.2500–1.2550fortheAUD/USDexchangeratetoacustomer.WhatisthepriceatwhichthecustomercanbuyoneunitoftheAustraliandollar?(a)1.2500.(b)1.2550.(c)0.8000.(d)0.7968.5.Ifafixedexchangerateissetbelowtheequilibriumrateinafixedexchangeratesystemitwillcreate(a)adeficitinthebalanceofpayments.(b)asurplusinthebalanceofpayments.(c)inflation.(d)deflation.6.Whichofthefollowingitemsisnotaflow?(a)Unilateraltransfers.(b)TheincreaseinforeignassetsheldbyAustralianinvestorsoveraperiodofsixmonths.(c)ForeignexchangereserveslostbytheReserveBankasaresultofinterventionintheforeignexchangemarket.(d)TheforeigncurrencyandgoldreservesoftheReserveBank.7.Thebalancingitemappearsonthebalanceofpaymentsto(a)accountforerrorsandomissionsinthedata.(b)equatethetradeandservicesaccounts.(c)accountforchangesinofficialreserves.(d)balancethecurrentaccount.8.Thesaleofforeignbondsleadsto(a)anincreaseinthesupplyoftheforeigncurrency.(b)anincreaseinthedemandfortheforeigncurrency.(c)anincreaseinthesupplyofthedomesticcurrency.(d)(b)and(c).9.IftheUSinflationrateislowerthantheAustralianinflationrateby5percentthenaccordingtorelativePPP(Hint:pleaseusetheapproximateversionofPPPtoanswerthisquestion)(a)theAustraliandollarshoulddepreciateby5percent.(b)theAustraliandollarshoulddepreciatebylessthan5percent.(c)theAustraliandollarshouldappreciateby5percent.(d)anythingcouldhappendependingontheinterestratedifferential.10.Iftheforeigncurrencyequivalentofthedomesticpriceofacommodityislessthantheforeignpriceofthesamecommodity,thentheLOPimpliesthat(a)theforeigncurrencyisovervalued.(b)theforeigncurrencyisundervalued.(c)thedomesticcurrencyisovervalued.(d)noneoftheabove.11.Iftheinterestratedifferentialandtheforwardspreadarepositiveandequalthen(a)theforeigncurrencyshouldofferahigherinterestrateandsellatadiscount.(b)theforeigncurrencyshouldofferahigherinterestrateandsellatapremium.(c)thedomesticcurrencyshouldofferahigherinterestrateandsellatapremium.(d)thedomesticcurrencyshouldofferahigherinterestrateandsellatadiscount.12.SupposeoneobservedthefollowingdirectspotquotationsinNewYorkandLondon,respectively:1.2500-60and0.8000-50.Arbitrageprofitsper$1millionequal(a)$637(b)$0(c)$1,268(d)$4,492(e)Noneoftheabove13.The$/DMexchangerateisDM1=$0.35andtheDM/FFexchangerateisFF1=DM0.31.WhatistheFF/$exchangerate?(a)3.226Frenchfrancsperdollar(b)1.129Frenchfrancsperdollar(c)0.886Frenchfrancsperdollar(d)9.217Frenchfrancsperdollar(e)noneoftheabove14.Americantermsreferstothe(a)numberofU.S.dollarsperunitofforeigncurrency(b)numberofforeign-currencyunitsperU.S.dollar(c)quotationsystemfoundintheUnitedStates(d)bid-askspreadontheU.S.dollar(e)noneoftheabove15.Inafreelyfloatingexchangeratesystem,ifthecapitalaccountisrunningadeficit(a)thebalanceofpaymentsmustrunadeficit(b)thebalanceofpaymentsmustbezero(c)thecurrentaccountmustrunasurplus(d)bandcabove(e)noneoftheabove16.Anationthatsaveslessthanitinvestsinitseconomymustrunacurrentaccount(a)surplus(b)deficit(c)basedonforeignborrowings(d)basedoncapitalinflows17.Accordingtointerestrateparity,thecurrencyofthecountrywiththelowerinterestrateshouldbeataforward_________intermsofthecurrencyofthecountrywiththehigherrate.(a)premium(b)discount(c)equilibrium18.Thecurrentfive-yearYen(¥)rateis6%perannum(compoundedannually).Thefive-yearUS$rateis8.5%.Whatistheimpliedforwardpremiumordiscountofthe¥(overthecurrentspotrateforafive-yearforwardcontract?(a)4.17%premium(b)18.46%discount(c)11.00%discount(d)12.36%premium19.Inafreelyfloatingexchangeratesystem,ifthecapitalaccountsurplusforAustraliarises,whatwillmostlikelyhappentotherealvalueofthedollar?(a)itwilldecline(b)itwillrise(c)can’ttell20.SupposeLufthansabuys10Boeing747sfor$150millionin1991,financedbyafive-yearloanfromtheU.S.Export-ImportBank.Thereisaone-yeargraceperiodonprincipalandinterestpayments.Thenetimpactofthissalein1991is(a)a$150millionreductionintheU.S.tradedeficit(b)a$150millionreductionintheU.S.capitalaccountsurplus(c)a0changeintheU.S.balanceofpaymentsin1991(d)alloftheabove(e)noneoftheabove21WhichofthefollowingisnotadirectinvestmentfromtheviewpointoftheAustralianbalanceofpayments?(a)OpeningarepresentativeofficefortheCommonwealthBankinOslo.(b)Buying20percentoftheequitycapitalofanoffshoreoilexplorationcompany.(c)Buyingthree-monthUSTreasurybills.(d)AcquisitionofasmallfinancialservicescompanyinZurich.22.IftheAUD/USDexchangeratedeclinesfrom1.2500to1.2450,thenthefallisequalto(a)50points.(b)5000pips.(c)50