2023 practice exam I_Qs (3)

1. Labor services in a country might be underpriced relative to productivity because A) workers are not allowed to freely move across national boundaries to seek higher wages. B) some countries do a bad job of educating their work force, consequently they are not very productive. C) in some countries there is a shortage of capital investment. D) all of the options are equally important 2 . If the central banks of the world chose to diversify their foreign exchange reserves away from the dollar and into the euro, A) this would have the result of a strengthening of the value of the dollar. B) could further diminish the position of the U.S. dollar as the dominant reserve currency C) this would not have much impact, as the information would be lost in the day-to-day volatility of exchange rates. D) none of the options 3 . What happens to U.S. BOP if  Walmart buys $10M of shoes from Taiwan Footwear  Walmart pays by wiring dollars from its NYC BofA account to TF’s Citibank account 4 . What happens to China’s BOP if  Sears imports clothing from China Textiles for $1M  Chinese Government buys the $1M for CNY6.40M 5 . In the latter half of the 1980s, with a strong yen, Japanese firms A) faced difficulty exporting. B) could better afford to acquire U.S. assets that had become less expensive in terms of yen. C) financed a sharp increase in Japanese FDI in the United States. D) all of the options 6. Using the table shown, what is the spot cross-exchange rate between pounds and euro on Tuesday?

Country U.S. $ equiv. Currency per U.S. $ Tuesday Monday Tuesday Monday U.K. (Pound) £62,500 2.0000 1.9800 0.5000 0.5051 1 Month Forward 2.0100 1.9900 0.4975 0.5025 3 Months Forward 2.0200 2.0000 0.4950 0.5000 6 Months Forward 2.0300 2.0100 0.4926 0.4975 12 Months Forward 2.0400 2.0200 0.4902 0.4950 Euro £62,500 1.5000 1.4800 0.6667 0.6757 1 Month Forward 1.5100 1.4900 0.6623 0.6711 3 Months Forward 1.5200 1.5000 0.6579 0.6667 6 Months Forward 1.5300 1.5100 0.6536 0.6623 12 Months Forward 1.5400 1.5200 0.6494 0.6579 A) €1.00 = £0.75 B) £1.33 = €1.00 C) £1.00 = €0.75 D) none of the option 7 . If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and ask prices are A) €0.6667 and €0.6623. B) $1.51 and $1.50. C) €0.6623 and €0.6667. D) cannot be determined with the information given. 8 . The current spot exchange rate is S($/€)=1.55 and the three-month forward rate is F 6 ($/ €)= 1.50. You enter into a forward contract to sell €1,000. At maturity, the spot exchange rate is $1.60/€. How much have you made or lost? A) Loss of $100 B) Gain of €100 C) Loss of $50 D) Gain of $150 9. The forward market A) involves contracting today for the future purchase or sale of foreign exchange at the spot rate that will prevail at the maturity of the contract. B) involves contracting today for the future purchase or sale of foreign exchange at a price

Using the IFE, the expected ZAR spot rate in USD one year from now. 13. Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting €0.7627/$1.00 and Credit Suisse is offering SFr1.1806/$1.00. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current €/SFr quote of .6395. Show how you can make a triangular arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage. a. What €/SFr price will eliminate triangular arbitrage? b. What steps would you take to make an arbitrage profit starting with $5,000,000? 14. If a currency forward contract (direct quote) is priced below the price implied by Interest Rate Parity (IRP), arbitrageurs could take advantage of the mispricing by simultaneously A) going short in the forward contract, borrowing in the domestic currency, and going long in the foreign currency in the spot market. B) going short in the forward contract, lending in the domestic currency, and going long in the foreign currency in the spot market. C) going long in the forward contract, borrowing in the domestic currency, and going short in the foreign currency in the spot market. D) going long in the forward contract, borrowing in the foreign currency, and going long in the domestic currency, investing the proceeds at the local rate of interest.