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Question 1

1. Which of the following is the best estimate of the daily volume of trade in
international money markets?

$1 million every day

the same size as the international commercial paper markets.

2 months of activity on the NYSE

the same size as international capital markets
1 points
Question 2
1. The risk that results from converting the value of foreign-denominated assets into a
common currency is called

economic exposure.

translation exposure.

transaction exposure.

foreign exposure.
1 points
Question 3
1.
Maturity Yield
1 month 0.06
3
months
0.1
6
months
0.3
1 year 0.4
2 years 0.5
5 years 0.8
10 years 1.2
30 years 2.4
2.
Suppose the table above represents the average current yield for various
international bonds, what would the shape of the yield curve show?

a downward sloping yield curve

an unusually inverted yield curve

a normal, inverted yield curve

a normal, upward sloping yield curve
1 points
Question 4
1. A perpetuity that pays $250 per year at an interest rate of 4% would have a market
price equal to

$62,500.

$6,250.

$2,500.

$25,000.
1 points
Question 5
1. What would the foreign interest rate need to be to achieve interest rate parity if the
domestic interest rate is 5%, the forward rate is 1.48 and the spot rate is 1.5?

8%

2%

7%

6%
1 points
Question 6
1. Financial intermediation is necessary because of

asymmetric information.

the risk of moral hazard.

adverse selection problems.

all of the above.
1 points
Question 7
1. Which of the following is not risk inherent in global payment systems?

credit risk

default risk

system risk

liquidity risk
1 points
Question 8
1. Suppose you have two investments to choose from:
1) A one-year $20,000 zero coupon bond
2) A two-year $20,000 zero coupon bond
What is the difference between the prices of these bonds if the interest rate rises
from 4% to 5%?

You would gain $350.54 more on the two year bond.

You would lose $167.39 more on the one year bond.

You would lose $167.39 more on the two year bond.

You would lose $183.15 more on the one year bond.
1 points
Question 9
1. When the IMF requires a country to implement policy changes in order to receive a
loan

the IMF must be using one of its financing facilities.

most countries reject the loans.

it means that the IMF will lower that country's quota.

it is called IMF conditionality.
1 points
Question 10
1. If the supply of loanable funds increases, what is the result for the equilibrium of
the loanable funds market?

A shortage of loanable funds would push interest rates up and decrease the
equilibrium quantity of loanable funds.

A surplus of loanable funds would push interest rates down and increase
the equilibrium quantity of loanable funds.

A surplus of loanable funds would push interest rates up and decrease the
equilibrium quantity of loanable funds.

A shortage of loanable funds would push interest rates down and increase
the equilibrium quantity of loanable funds.
1 points
Question 11
1. If the nominal interest rate is 4% and the expected rate of inflation is 6%, then the
real interest rate is

24%.

-2%.

0%.

2%.
1 points
Question 12
1. One of the problems in determining how efficient foreign exchange markets are is
that

traders' expectations of risk premiums may be false.

uncovered interest parity might exist.

foreign exchange markets include only developed currencies.

supply of foreign currencies are determined by governments.
1 points
Question 13
1. A bank's activities that earn income without expanding the bank's balance sheet,
such as derivative trading, is known as

supplementary capital investment.

risk-adjusting assets.

off-balance-sheet banking.

core capital expansion.
1 points
Question 14
1. Why would a country's currency come under a speculative attack?

A country changes its monetary regime unexpectedly.

A country raises its interest rate too high attracting currency investors.

A country announces a poor monetary policy decision.

A country has nearly exhausted its foreign currency reserves.