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1 | | There is $1,000 USD available to invest for one year at an interest rate of 5%. If the Ruritanian peso has an interest rate of 15.5% how many Ruritanian peso are produced? |
| | A) | 62,750 |
| | B) | 47,750 |
| | C) | 57,750 |
| | D) | 35,500 |
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2 | | The rate of inflation is 1.0% in the United States and 11.1% in Ruritania. The number of pesos that can be bought for a dollar will rise by 10%. If the current spot rate is 50 what is the expected exchange rate? |
| | A) | $55.00 |
| | B) | $79.89 |
| | C) | $34.12 |
| | D) | $22.00 |
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3 | | The expectations theory of forward rates implies that: |
| | A) | The forward rate is determined by government's expectations |
| | B) | On average, the forward rate is equal to the expected change in the spot rate |
| | C) | The forward rate is determined by expectations of the future spot interest rate |
| | D) | The forward rate is equal to the future spot rate |
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4 | | The Ruritanian nominal interest rate is 15.5%, and the Ruritanian inflation rate is 11.1%. What is the expected real interest rate? |
| | A) | 16% |
| | B) | 10% |
| | C) | 5% |
| | D) | 4% |
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5 | | The current rate of exchange for a Big Mac costs $8.31 in Norway but only $4.07 in the United States. How much of an increase would there be to equalize price between the Krone and the U.S. dollar? |
| | A) | 89% |
| | B) | 104% |
| | C) | 59% |
| | D) | 34% |
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6 | | If the Swiss Franc interest rate is 4%, the interest rate of the U.S. dollar is 6%, and the dollar return is 12%, what is the Swiss Franc rate of return? |
| | A) | 9.9% |
| | B) | 11.8% |
| | C) | 6.4% |
| | D) | 2.3% |
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7 | | According to the international Fisher effect, if expected real interest rates are equal between two countries, then difference in money rates may be equal to: |
| | A) | The spot rate |
| | B) | The forward rate |
| | C) | The difference in purchasing power |
| | D) | The difference in expected inflation rates |
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8 | | A company's financing choices need to reflect the impact of a change in the exchange rate on the value of the entire business. This is known as: |
| | A) | Currency exposure |
| | B) | Economic exposure |
| | C) | Risk exposure |
| | D) | None of these options |
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9 | | Political risk is defined as: |
| | A) | Unanticipated changes in exchange rates |
| | B) | Unanticipated actions by a hostile foreign government affecting the cash flows of a project |
| | C) | Unanticipated actions by the World Bank affecting the cash flows of a project |
| | D) | All of these options |
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10 | | Interest rate parity is ensured by |
| | A) | The government |
| | B) | The World Bank |
| | C) | Arbitrage |
| | D) | None of these options |
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11 | | If £1 buys $1.5667 (GBP £1 is equivalent to USD $1.5667), then how much does $1 buy? |
| | A) | £.5577 |
| | B) | £.8909 |
| | C) | £.4367 |
| | D) | £.6383 |
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12 | | Exchange rates are affected by: |
| | A) | Changes in interest rates |
| | B) | Inflation rates |
| | C) | Spot rates |
| | D) | All of these options |
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13 | | When a firm deliberately takes on currency risk, it is ________. |
| | A) | speculating |
| | B) | hedging its position |
| | C) | hoping to gain |
| | D) | speculating and hedging its position |
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14 | | The most difficult risk to manage is |
| | A) | Currency risk |
| | B) | Political risk |
| | C) | Commodity risk |
| | D) | Price risk |
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15 | | The exchange rate on currency for immediate exchange is known as the: |
| | A) | Spot rate of exchange |
| | B) | Forward rate of exchange |
| | C) | Discounted rate of exchange |
| | D) | None of these options |
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