QUESTION 12 The interest rate in Pakistan is 0.4, the exchange rate is 1.0 and market participants expect the exchange rate next year to be 0.9. O - 0.15 0.30 0.10 0.25 QUESTION 13 The interest rate in Iran is 0.20, the exchange rate is 4.0, the forward rate is 4.0 and the risk premium is 0.15. 0.10 0.05 -0.05 0.20
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- Consider the balance-of-payments accounting information for Lalaland in 2010 as shown in the table below. All values are in billions of dollars and any variables not provided below have a value of zero. Exports 560 Imports Net foreign-investment income Capital outflows Capital inflows 350 - 50 255 95 What is the current account balance for Lalaland in 2010? ..... O A. $160 billion O B. $260 billion OC. - $260 billion O D. - $160 billion O E. $0Under a fixed exchange rate regime, when the value of the domestic currency decreases, it is called a(n) O depreciation O appreciation O revaluation O devaluation O none of these are correctThe demand for Australian dollars in the foreign exchange market equals 14000 – 3000e and thesupply of Australian dollars in the foreign exchange market equals 2000 + 2000e, where e is thenominal exchange rate expressed in euros per Australian dollar. If the Australian dollar is fixed at 2euros per Australian dollar, then to maintain this fixed rate, what is the required change in theReserve Bank of Australia’s holdings of euros? 1increase by 4000 euros 2decrease by 2000 euros 3decrease by 4000 euros 4increase by 2000 euros
- Q.1.11 What is a foreign exchange rate? (a) The rate at which the currency of one country trades for the goods ofanother country.(b) The rate at which one country’s goods trade for those of anothercountry.(c) The rate at which currencies of different countries are exchanged.(d) The rate at which one country’s currency trades for gold provided byanother country.Q.1.12 As a result of more Americans visiting South Africa, we can expect, ceteris paribus:(a) an appreciation of the rand relative to the dollar.(b) a depreciation of the rand relative to the dollar.(c) an appreciation of the dollar relative to the rand.(d) that it will cost South Africans more to visit the United States.Q.1.13 What is a tariff? (a) A form of subsidy.(b) A tax on imported goods.(c) A tax on foreign property.(d) A form of quota.Suppose a basket of goods costs $50 in the U.S. and €20 in France. What exchange rate, in dollars per euro, would be consistent with purchasing power parity? O $1.50 O $0.40 O $2.50 O $23 / 3 100% 每 8. The price of a laptop in the United States is $1,000. The price of a car in taly is 10,000 euros The current exchange rate rs09 curos per dollr. Ifa laptop is exported from the United Startes to Italy with no barriers to trade, what will be the price of the aptop in Italy? Ira car is imported to the United States from luh with barriers to trade, what will be the price of the crin ahe Ented Statres? Suppose the dollar appreciates by 0pereent aganscihecomo. Whr will be the price ofa computer exporied from the United States changem ltaly? -Suppose thhe dollarapprecites br 10 percentagamst the curoWt willbethe price of a car inmported to the Enred States from Ital chnge m tdhe Eaed Statese (8 marks) (2marks) 2marks) (2marks] (2marks)
- On the foreign exchange market, an increase in a country's exchange rate O a. decreases the demand for its currency and shifts the demand curve leftward. O b. decreases the quantity demanded of its currency and leads to a movement up along the demand curve. decreases the demand for its currency and shifts the demand curve rightward. O d. increases the quantity demanded of its currency and leads to a movement down along the demand curve. O . increases the quantity demanded of its currency and leads to a movement up along the demand curve.Consider a small open economy where the world interest rate is 5%. The domestic investment demand at this interest rate is $1200 and desired national savings is $500. Which of the following statements is true about its current account? O A. There is a current account deficit of $700 O B. There is a current account surplus of $700 OC Current account is exactly zero O D. Cannot be determinedWhich of the following statement is incorrect? O Most of the answers are correct. O Diversifying investments across several countries often reduces risk. The absolute purchasing power parity theory posits that exchange rates are determined by the differences in the prices of a given market basket of traded goods and services when there are no trade barriers. O An exchange rate of two currencies found by using a common third currency is known as an interest rate. O Exchange rates can be expressed as the number of units of the domestic currency per one unit of the foreign currency.
- (b) Suppose in month t the monthly nominal interest rate is i 0% in Japan and i = 5% in South Africa. Suppose further that in month t a speculator invests 500 million yen in carry trade for one month. Let & be the nominal exchange rate in t, defined as the 4 rand price of one yen. Suppose that between t and t +1 the yen appreciates by 2% percent. Did the speculator gain or lose and by how much? Express your answer in yen.Determine which account of the Balance-of-Payments is affected by the following transaction: You travel to the United States for holiday and spend US$500 Select one: O a. Current Account - Imports O b. Capital Account - Portfolio Investment O c Current Account - Exports O d. Capital Account Foreign Direct Investment O e. Current Account- TransfersAssume that the U.S. interest rate is 12 percent, while the British interest rate is 15 percent. If interest rate parity exists, then: O a.U.S. investors will earn 12 percent whether they use covered interest arbitrage or invest in the United States. O b. U.S. investors will earn a higher rate of return when using covered interest arbitrage than what they would earn in the United States. O c. British investors who invest in the United Kingdom will achieve the same return as U.S. investors who invest in the United States. O d. U.S. investors will earn 15 percent whether they use covered interest arbitrage or invest in the United States.