Professional Documents
Culture Documents
Uttar Pradesh
India 201303
ASSIGNMENTS
PROGRAM: MFC
SEMESTER-III
Subject Name :
Study COUNTRY :
Roll Number (Reg.No.) :
Student Name :
INSTRUCTIONS
a) Students are required to submit all three assignment sets.
Signature : _________________________________
Date : _________________________________
10 marks each
Q1. What are different kinds of risks involved in dealing in foreign exchange market?
Explain.
Q2. Explain
a)Theory of Comparative advantage
b)Reasons for introduction of Bretton woods system
Q2. What do you understand by transaction and translation exposure? How can these be
hedged?
Q3. What are different kinds of derivative instruments? How are forwards different from
future. Explain with example.
1. Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is equal to $.35.
The value of the Peruvian Sol in Canadian dollars is:
a. about .3621 Canadian dollars.
b. about .3977 Canadian dollars.
c. about 2.36 Canadian dollars.
d. about 2.51 Canadian dollars.
3. The value of the Australian dollar (A$) today is $0.73. Yesterday, the value of the
Australian dollar was $0.69. The Australian dollar ________ by _______%.
A) depreciated; 5.80
B) depreciated; 4.00
C) appreciated; 5.80
D) appreciated; 4.00
4.. An increase in the current account deficit will place _______ pressure on the home
currency value, other things equal.
A) upward
B) downward
C) no
D) upward or downward (depending on the size of the deficit)
5. Forward contracts:
A) contain a commitment to the owner, and are standardized.
B) contain a commitment to the owner, and can be tailored to the desire of the owner.
C) contain a right but not a commitment to the owner, and can be tailored to the
desire of the owner.
D) contain a right but not a commitment to the owner, and are standardized.
6. Which of the following is true?
A) Most forward contracts between firms and banks are for speculative purposes.
B) Most future contracts represent a conservative approach by firms to hedge foreign
trade.
C) The forward contracts offered by banks have maturities for only four possible
dates in the future.
D) none of the above
10. Punjab National Bank Mumbai Branch quoted USD 1= Rs 50.5000/52.5050. Which
is the bid rate for USD?
a) 50.5000
b) b) 52.5050
c) 50.5050
d) d)52.5000
a) Dividends from a foreign subsidiary are tax exempt in the United States
b) Most governments do not tax foreign corporations
c) There are possible benefits from international diversification.
d) International investments have less political risk than domestic investments
13. Interest-rate parity refers to the concept that, where market imperfections are few,
a) the same goods must sell for the same price across countries.
b) interest rates across countries will eventually be the same.
c) there is an offsetting relationship between interest rate differentials and
differentials in the forward spot exchange market.
d) there is an offsetting relationship provided by costs and revenues in similar
market environments.
14.Suppose that the Japanese yen is selling at a forward discount in the forward-exchange
market. This implies that most likely
a) this currency has low exchange-rate risk.
b) this currency is gaining strength in relation to the dollar.
c) interest rates are higher in Japan than in the United States.
d) interest rates are declining in Japan.
16. If the dollar moves from 100 yen to 110 yen, then:
a) a the dollar has depreciated
b) the yen has appreciated
c) both of the above have occurred
d) none of the above have occurred
17.A nation's currency will appreciate in the long run if the nation exhibits which of the
following characteristics?
a) high inflation and high productivity growth
b) high productivity growth and increased tariffs on imports
c) high productivity growth and reduced tariffs on imports
d) none of the above
21.Suppose that purchasing power parity holds, and that the current exchange rate
between the dollar and the yen is 110 yen/$. If inflation in the U.S. runs at 4 percent and
inflation in Japan runs at 2 percent, next year we would expect the exchange rate to
be roughly
a) 112 yen/$
b) 108 yen/$
c) 116 yen/$
d) 102 yen/$
22. The largest volume of activity in foreign exchange markets is related to:
a) international flows of financial capital
b) exports and imports
c) government transactions abroad
d) firms building plants abroad
23.When the Swiss franc appreciates (holding everything else constant), then
a) Swiss watches sold in the United States become more expensive.
b) American computers sold in Switzerland become more expensive.
c) Swiss army knives sold in the United States become cheaper.
d) American toothpaste sold in America becomes cheaper.
e) Both (a) and (d) of the above are true.
24.The theory of purchasing-power parity indicates that if the price level in the United
States rises by 5% while the price level in Mexico rises by 6%, then
a) the dollar appreciates by 1% relative to the peso.
b) the dollar depreciates by 1% relative to the peso.
c) the exchange rate between the dollar and the peso remains unchanged.
d) the dollar appreciates by 5% relative to the peso.
e) the dollar depreciates by 5% relative to the peso.
26.All other things equal, an increase in inflation in Mexico shifts the supply of dollars
_______, the demand for dollars to the _________, and causes a(n) _______ in
the peso relative to the dollar.
a) right; left; appreciation
b) left; right; depreciation
c) right; left; depreciation
d) left; right; appreciation
28.If the interest rate on dollar deposits is 10 percent, and the dollar is expected to
appreciate by seven percent over the coming year, then the expected return on the dollar
deposit in terms of foreign currency is
a) 3%
b) 17%
c) -3%
d) 10%
31.If the Federal Reserve wants the dollar to appreciate, it will likely adopt a
a) expansionary monetary policy
b) contractionary monetary policy
c) expansionary fiscal policy
d) contractionary fiscal policy
32.Which exchange rate system involves a strategy of “leaning against the wind?”
a) fixed exchange rates
b) floating exchange rates
c) managed floating exchange rates
d) pegged exchange rates
34. An increase in the current account deficit will place _______ pressure on the home
currency value, other things equal.
a) upward
b) downward
c) no
d) upward or downward (depending on the size of the deficit)
36. A weakening of the U.S. dollar with respect to the British pound would likely reduce
the U.S. exports to Britain and increase U.S. imports from Britain.
a) true.
b) false.
37. Assume that a bank's bid rate on Swiss francs is £0.25 and its ask rate is £0.26. Its
bid-ask percentage spread is:
a) 4.00%.
b) 4.26%.
c) about 3.85%.
d) about 4.17%.
39. The forward rate is the exchange rate used for immediate exchange of currencies
a) True
b) False
40. In general, when speculating on exchange rate movements, the speculator will borrow
the currency that is expected to appreciate and invest in the country whose currency is
expected to depreciate.
a) True
b) False