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Exam 9: Foreign Exchange Markets

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Question 31

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A drop in value of the dollar hurts U.S. importers and helps U.S. exporters,ceteris paribus.

A) True
B) False

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Question 32

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If the dollar is initially worth 120 yen and then the exchange rate changes so that the dollar is now worth 115 yen,the value of the yen has depreciated.

A) True
B) False

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Question 33

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In 1973,the Smithsonian Agreement II eliminated fixed exchange rates for the major economies.

The largest center for trading in foreign exchange is

Which of the following are likely to lead to an appreciation of the U.S. dollar (ceteris paribus) ? I. Higher real U.S. interest rates II. Lower U.S. inflation III. Higher nominal U.S. interest rates

In 2015,the U.S. imported goods and services worth about ________ and exported about ________ leading to a current account ________.

New York is the global center of foreign exchange trading with the largest daily volume of currency trading.

You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound one-year forward at $2.01 to the pound. If U.S. annual interest rates are 5 percent,what must be the approximate one-year British interest rate if interest rate parity holds?

A U.S. bank has made £50 million loans in Britain and has £40 million in deposits. The bank's currency trading desk has also contracted to buy £20 million and has short positions of £15 million. What is the bank's net exposure? How could they use forward contracts to hedge the exposure? If the bank has exposures in euros and yen,would you recommend they use the forward hedge? Why or why not?

Foreign exchange trading in 2016 averaged about ________ per day.

You can buy or sell the yen spot at ¥102 to the dollar. You can buy or sell the yen one-year forward at ¥104 to the dollar. If U.S. annual interest rates are 4 percent,what must be the approximate one-year Japanese interest rate if interest rate parity holds?

Why does the size of the U.S. current account deficit put pressure on the value of the dollar to decline? How does the size of the capital account affect that pressure? Explain.

The ongoing accumulation of foreign currency reserves by foreign monetary authorities contributed to the dollar's drop in 2006.

An investor starts with $1 million and converts it to 0.75 million pounds,which is then invested for one year. In a year the investor has 0.7795 million pounds,which she then converts to dollars at an exchange rate of 0.72 pounds per dollar. The U.S. dollar annual rate of return earned was ________.

A country with lower interest rates than another country is likely to see its currency appreciate if parity holds.

A negotiated OTC agreement to exchange currencies at a fixed date in the future but at an exchange rate specified today is a

The large U.S. current account deficit implies that

A U.S. investor has borrowed pounds,converted them to dollars,and invested the dollars in the United States to take advantage of interest rate differentials. To cover the currency risk,the investor should

Which of the following conditions may lead to a decline in the value of a country's currency? I. Low interest rates II. High inflation III. Large current account deficit

If interest rate parity holds and the annual German nominal interest rate is 3 percent and the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both countries,then inflation in Germany is about ________ than in the United States.