TCQT_In class quiz_IRP PPP IFE DFI WACC CAPM
Quiz by Dương Đăng Khoa
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35 questions
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- Q1Due to ____, market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies.covered interest arbitragetriangular arbitrageforward realignment arbitragelocational arbitrage60s
- Q2If interest rate parity exists, then ____ is not feasible.covered interest arbitrageforward realignment arbitragelocational arbitragetriangular arbitrage60s
- Q3When using ____, funds are not tied up for any length of timenone of abovelocational arbitragetriangular arbitragecovered interest arbitrage60s
- Q4Assume that the interest rate in the home country of Currency X is a much higher interest rate than the U.S. interest rate. According to interest rate parity, the forward rate of Currency Xshould be zero (i.e., it should equal its spot rate).none of aboveshould exhibit a premium.should exhibit a discount.60s
- Q5Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the U.S. interest rate, thelarger will be the forward premium of the foreign currency.smaller will be the forward premium of the foreign currency.larger will be the forward discount of the foreign currency.smaller will be the forward discount of the foreign currency.60s
- Q6Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countriesIf Country A's interest rate exceeds Country B's inflation rate, Country A's currency will strengthen.If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency will weaken.If Country A's inflation rate exceeds Country B's inflation rate, Country A's currency will weaken.If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will weaken.60s
- Q7Given a home country and a foreign country, purchasing power parity (PPP) suggests thata home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate.a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.60s
- Q8The international Fisher effect (IFE) suggests thata home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.60s
- Q9According to the IFE, if British interest rates exceed U.S. interest ratesthe British pound's value will remain constant.the forward rate of the British pound will contain a premium.the British inflation rate will decrease.the British pound will depreciate against the dollar.60s
- Q10Given a home country and a foreign country, the international Fisher effect (IFE) suggests thatthe exchange rates of both countries will move in a similar direction against other currencies.the nominal interest rates of both countries are the same.none of abovethe inflation rates of both countries are the same.60s
- Q11If interest rates on the euro are consistently below U.S. interest rates, then for the international Fisher effect (IFE) to holdthe value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation.the value of the euro would remain constant most of the time.the value of the euro would often depreciate against the dollar.the value of the euro would often appreciate against the dollar.60s
- Q12According to the international Fisher effect, if U.S. investors expect a 5% rate of domestic inflation over one year, and a 2% rate of inflation in European countries that use the euro, and require a 3% real return on investments over one year, the nominal interest rate on one-year U.S. Treasury securities would be4%none of above2%3%60s
- Q13If countries are highly influential upon each other, the correlations of their economic growth levels would likely be ____. A firm would benefit ____ by diversifying sales among these countries relative to another set of countries that were not influential upon each otherhigh and positive; lesshigh and positive; moreclose to zero; lessclose to zero; more60s
- Q14Even if production costs are higher in a foreign country, a U.S. firm may establish a manufacturing plant in the foreign country now ifthe host government of that country increases all quotas.the host government of that country eliminates all quotas.the host government of that country eliminates all tariffs.the host government of that country reduces all quotas.60s
- Q15When a firm perceives that a foreign currency is ____, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively ____.undervalued; highovervalued; lowovervalued; highundervalued; low60s