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1、Review Material for International Finance （2009）First Part: A. Concept Explanation: ( select6,18points)1. London Interbank Offered Rate (LIBOR)2. Special Drawing Rights (SDR)3. Bretton Woods System4. Current Account5. Euro6. European Option7. International Fisher Effect8. Law of One Price9. Purchasi
2、ng Power Parity (PPP)10. Option11. Foreign exchange12. Euro-bond13. Balance of Payments14. Greshams Law 15. Forward Discount 16. J curves effect17. Premium18. Official reserve assets19. Open Interest20. OTC21. CDS22. NDF23. Swap agreement24. Unilateral transfer25. FX exposure26. Cover position27. IP
3、O28. QFII29. QDII30. Optional Forward Exchange B. Multiple-choice test(only one is correct): 1. Greshams Law states that a) Bad money drives good money out of circulation.b) Good money drives bad money out of circulationc) If a country bases its currency on both gold and silver, at an official excha
4、nge rate, it will be the more valuable of the two metals that circulate.d) None of the above.2. Balance of paymentsa) is defined as the statistical record of a countrys international transactions over a certain period of time presented in the form of a double-entry bookkeepingb) provides detailed in
5、formation concerning the demand and supply of a countrys currencyc) can be used to evaluate the performance of a country in international economic competitiond) all of the above3. If the United States imports more than it exports, then a) The supply of dollars is likely to exceed the demand in the f
6、oreign exchange market, ceteris paribus.b) One can infer that the U.S. dollar would be under pressure to depreciate against other currenciesc) a) and b)d) None of the above4. The current spot exchange rate is $1.55/ and the three-month forward rate is $1.50/. You enter into a short position on 1,000
7、. At maturity, the spot exchange rate is $1.60/. How much have you made or lost?a) Lost $100b) Made 100c) Lost $50d) Made $1505. The sensitivity of “realized” domestic currency values of the firms contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is:a)
8、 Transaction exposureb) Translation exposurec) Economic exposured) None of the above6. Three days ago, you entered into a futures contract to sell 62,500 at $1.20 per . Over the past three days the contract has settled at $1.20, $1.22, and $1.24. How much have you made or lost?a) Lost $0.04 per or $
9、2,500b) Made $0.04 per or $2,500c) Lost $0.06 per or $3,750d) None of the above7. A swap banka) Can act as a broker, bringing together counterparties to a swapb) Can act as a dealer, standing ready to buy and sell swapsc) Both a) and b)d) Only sometimes a) but never ever b)8. Suppose that the one-ye
10、ar interest rate is 5.0 percent in the United States, the spot exchange rate is $1.20/, and the one-year forward exchange rate is $1.16/. What must one-year interest rate be in the euro zone?a) 5.0%b) 1.09%c) 8.62%d) None of the above. 9. Suppose the spot ask exchange rate, Sa($|), is $1.90 = 1.00 a
11、nd the spot bid exchange rate, Sb($|), is $1.89 = 1.00. If you were to buy $10,000,000 worth of British pounds and then sell them five minutes later, how much of your $10,000,000 would be “eaten” by the bid-ask spread?a) $1,000,000b) $52,910.05c) $100,000d) $52,631.58 10. Under the gold standard, in
12、ternational imbalances of payment will be corrected automatically under thea) Gresham Exchange Rate regimeb) European Monetary Systemc) Price-specie-flow mechanismd) Bretton Woods Accord11. With any hedgea) Your losses on one side should about equal your gains on the other sideb) You should try to m
13、ake money on both sides of the transaction: that way you make money coming and goingc) You should spend at least as much time working the hedge as working the underlying deal itselfd) You should agree to anything your banker puts in front of your face12. Comparing “forward” and “futures” exchange co
14、ntracts, we can say that:a) They are both “marked-to-market” daily.b) Their major difference is in the way the underlying asset is priced for future purchase or sale: futures settle daily and forwards settle at maturity.c) A futures contract is negotiated by open outcry between floor brokers or trad
15、ers and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC.d) b) and c)13. An “option” isa) a contract giving the seller (writer) the right, but not the obligation, to buy or sell a given quantity of an asset at a specif
16、ied price at some time in the futureb) a contract giving the owner (buyer) the right, but not the obligation, to buy or sell a given quantity of an asset at a specified price at some time in the futurec) not a derivative, nor a contingent claim, securityd) unlike a futures or forward contract14. Eco
17、nomic exposure refers toa) the sensitivity of realized domestic currency values of the firms contractual cash flows denominated in foreign currencies to unexpected exchange rate changesb) the extent to which the value of the firm would be affected by unanticipated changes in exchange ratec) the pote
18、ntial that the firms consolidated financial statement can be affected by changes in exchange ratesd) ex post and ex ante currency exposures15. Under a purely flexible exchange rate systema) Supply and demand set the exchange ratesb) Governments can set the exchange rate by buying or selling reserves
19、c) Governments can set exchange rates with fiscal policyb) and c) are correct.16. Generally speaking, any transaction that results in a payment to foreignersa) Will be recorded as a debit, with a negative sign, in the U.S. balance of paymentsb) Will be recorded as a debit, with a positive sign, in t
20、he U.S. balance of paymentsc) Will be recorded as a credit, with a negative sign, in the U.S. balance of paymentsd) Will be recorded as a credit, with a positive sign, in the U.S. balance of payments17. Factor incomea) Consists largely of interest, dividends, and other income on foreign investments.
21、b) Is a theoretical construct of the factors of production, land, labor, capital, and entrepreneurial ability.c) Is generally a very minor part of national income accounting, smaller than the statistical discrepancy.d) None of the above18. A countrys international transactions can be grouped into th
22、e following three main types:a) current account, medium term account, and long term capital accountb) current account, long term capital account, and official reserve accountc) current account, capital account, and official reserve accountd) capital account, official reserve account, trade account19
23、. When a country must make a net payment to foreigners because of a balance-of-payments deficit, the central bank of the country a) Should do nothingb) Should run down its official reserve assets (e.g. gold, foreign exchanges, and SDRs)c) Should borrow a new from foreign central banks.d) b) or c) wi
24、ll work20. Assume that the balance-of-payments accounts for a country are recorded correctly. balance on the current account = BCA = $130 billionbalance on the capital account = BKA = -$86 billionbalance on the reserves account = BRA = ?The balance on the reserves account (BRA), under the fixed exch
25、ange regime isa) $44 billionb) $44 billionc) $216 billiond) none of the above21. The “J-curve effect” shows:a) the initial deterioration and the eventual improvement of a countrys trade balance following a currency depreciationb) the initial improvement and the eventual depreciation of a countrys tr
26、ade balance following a currency depreciationc) the trade balances lack of responsiveness to the exchanges rate changesd) none of the above22. The worlds largest foreign exchange trading center is:a) New Yorkb) Tokyoc) Londond) Hong Kong23. Suppose that the current exchange rate is 0.80 = $1.00. The
27、 direct quote, from the U.S. perspective isa) 1.00 = $1.25b) 0.80 = $1.00c) 1.00 = $1.80d) None of the above24. The forward marketa) Involves contracting today for the future purchase of sale of foreign exchange at the spot rate that will prevail at the maturity of the contract.b) Involves contracti
28、ng today for the future purchase of sale of foreign exchange at a price agreed upon today.c) Involves contracting today for the right but not obligation to the future purchase of sale of foreign exchange at a price agreed upon today.d) None of the above25. Under the Bretton Woods systema) there was
29、an explicit set of rules about the conduct of international monetary policiesb) each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessaryc) the U.S. dollar was the only currency that was fully converti
30、ble to goldd) all of the above26. With regard to the current exchange rate arrangement between the U.S. and the U.K., it is best characterized asa) Independent floating (market determined)b) Managed floatc) Currency boarda) Pegged exchange rate within a horizontal band.27. The $/CD spot bid-ask rate
31、s are $0.7560-$0.7625. The 3-month forward points are 12-16. Determine the $/CD 3-month forward bid-ask rates.a) $0.7548-$0.7609b) $0.7572-$0.7641c) $0.7512-$0.7616d) cannot be determined with the information given28. Purchasing Power Parity (PPP) theory states that:a) The exchange rate between curr
32、encies of two countries should be equal to the ratio of the countries price levels.b) As the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.c) The prices of standard commodity baskets in two countries are not related.d)
33、 a) and b)29. International reserve assets include “foreign exchanges”. These area) Special Drawing Rights (SDRs) at the IMFb) reserve positions in the International Monetary Fund (IMF)c) Foreign currency held by a countrys central bankd) None of the above30. The capital account may be divided into
34、three categories:a) Cross-border mergers and acquisitions, portfolio investment, and other investmentb) Direct investment, portfolio investment, and Cross-border mergers and acquisitionsc) Direct investment, mergers and acquisitions, and other investmentd) Direct investment, portfolio investment, an
35、d other investment31. A U.S.-based currency dealer has good credit and can borrow $1,000,000 for one year. The one-year interest rate in the U.S. is i$ = 2% and in the euro zone the one-year interest rate is i = 6%. The spot exchange rate is $1.25 = 1.00 and the one-year forward exchange rate is $1.
36、20 = 1.00. Show how to realize a certain dollar profit via covered interest arbitrage.a) Borrow $1,000,000 at 2%. Trade $1,000,000 for 800,000; invest at i = 6%; translate proceeds back at forward rate of $1.20 = 1.00, gross proceeds = $1,017,600.b) Borrow 800,000 at i = 6%; translate to dollars at
37、the spot, invest in the U.S. at i$ = 2% for one year; translate 848,000 back into euro at the forward rate of $1.20 = 1.00. Net profit $2,400.c) Borrow 800,000 at i = 6%; translate to dollars at the spot, invest in the U.S. at i$ = 2% for one year; translate 850,000 back into euro at the forward rat
38、e of $1.20 = 1.00. Net profit 2,000.d) Answers c) and b) are both correct32. Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange ratea) Will tend to weaken the competitive position of import-competing U.S. car makers. b) Will tend to strengthen the comp
39、etitive position of import-competing U.S. car makers. c) Will tend to strengthen the competitive position of Japanese car makers at the expense of U.S. makers. d) None of the above33. Swap transactionsa) Involve the simultaneous sale (or purchase) of spot foreign exchange against a forward purchase
40、(or sale) of approximately an equal amount of the foreign currency.b) Account for about half of Interbank FX trading.c) All of the aboved) Involve trades of one foreign currency for another without going through the U.S. dollar34. If you have a long position in a foreign currency, you can hedge with
41、:a) A short position in an exchange-traded futures optionb) A short position in a currency forward contractc) A short position in foreign currency warrantsd) borrowing (not lending) in the domestic and foreign money markets35. Purchasing Power Parity (PPP) theory states that:a) The exchange rate bet
42、ween currencies of two countries should be equal to the ratio of the countries price levels.b) As the purchasing power of a currency sharply declines (due to hyperinflation) that currency will depreciate against stable currencies.c) The prices of standard commodity baskets in two countries are not r
43、elated.d) a) and b)36. Most foreign exchange transactions are for:a) Intervention by central banksb) Interbank trades between international banks or nonbank dealersc) retail traded) purchase of hard currencies37. Relative to the spot price the forward price will be a) Usually less than the spot pric
44、eb) Usually more than the spot pricec) Usually equal to the spot priced) Usually less than or more than the spot price more often than it is equal to the spot price.38. If the $/ bid and ask prices are $1.50 and $1.51, respectively, the corresponding /$ bid and ask prices are:a) 0.6667 and 0.6623b)
45、$1.51 and $1.50c) 0.6623 and 0.6667d) cannot be determined with the information given39. Following the introduction of the euro, the national central banks of the euro-12 nationsa) disbandedb) Formed the ESCB, which is analogous to the Federal Reserve System in the United Statesc) Continue to perfor
46、m important functions in their jurisdictions d) b) and c) are correct.40. In the long run, both exports and imports tend to bea) Unresponsive to changes in exchange ratesb) Responsive to changes in exchange ratesc) Both a) and b)d) None of the above41. The euro a) is the common currency of Europeb)
47、is divisible into 100 cents, just like the U.S. dollarc) may eventually have a transaction domain larger than the U.S. dollard) All of the above42. Under the Bretton Woods systema) there was an explicit set of rules about the conduct of international monetary policiesb) each country was responsible
48、for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessaryc) the U.S. dollar was the only currency that was fully convertible to goldd) all of the above43. Special Drawing Rights (SDR) are:a) an artificial international reserve allotted to the members of the Int
