Solved by verified expert :31. If the forward premium on the dollar
is zero while the interest rate on U.S. T-bills is 4% and interest
rate on British T-bills is 6.5%, the covered interest differential is in favor
of:
a. Buying.
b. Investing.
c. The United
Kingdom.
d. The United
States.
32. If the dollar is at a forward premium
against the British pound of 3%, while the interest rate on U.S. T-bills
is 4% and the interest rate on British T-bills is 6.5%, the covered interest
differential is in favor of:
a. Buying.
b. Investing.
c. The United
Kingdom.
d. The United
States
33. If the dollar is at a forward premium
against the British pound of 1%, while the interest rate on U.S. T-bills
is 4% and the interest rate on British T-bills is 6.5%, an American investor
who does not want to face exchange rate risk (but does want to make the highest
possible returns) should:
a. Invest in
dollar-denominated assets.
b. Invest in
pound-denominated assets.
c. Forego use of the
forward exchange rate market.
d. Not move dollars to
the United Kingdom.
34. If the covered interest differential
is zero:
a. International
investments will be unprofitable.
b. Parity has not been
reached.
c. The overall covered
return on a foreign-currency investment equals the return on a comparable
domestic-currency investment.
d. A currency is at a
forward premium by as much as its interest rate is higher than the interest
rate in the other country.
35. When uncovered interest parity holds:
a. A currency is
expected to appreciate by as much as its interest rate is lower than the
interest rate in the other country.
b. A currency is
expected to appreciate by as much as its interest rate is higher than the
interest rate in the other country
c. A currency is
expected to depreciate by as much as its interest rate is lower than the
interest rate in the other country
d. The forward premium
equals the interest rate differential.
36. When the $/£ forward rate is below
the current spot rate, the sterling trades at a(n):
a. Forward premium.
b. Forward discount.
c. Covered parity.
d. Uncovered parity.
37. The interest rate in the U.K. is
4% for 90 days, the current spot rate is $2.00/£ and the forward rate is
$1.96/£. If the covered interest rate differential is about-1%,
then the interest rate in the U.S. for 90 days would have to be:
a. 7%
b. 4%
c. 3%
d. 2%
38. The interest rate is 4% in the U.K. and
3% in the U.S. for 90 days. The current spot rate is $2.00/£ and the
forward rate is $1.96/£. If a U.S. based investor expects the spot
rate to remain at $2.00/£ in 90 days, the expected covered interest
rate differential would have to be __________ in favor of the __________
investment.
a. 2%, dollar
b. 2%, pound
c. 1%, dollar
d. 1%, pound
39. International Fisher Effect refers to
the condition when:
a. Covered
differential equals zero.
b. Expected uncovered
differential equals zero.
c. Uncovered interest
parity holds.
d. Both (b) and (c).
40. A _____________ gives the holder the
right but not the obligation to sell a foreign currency at some time in the
future at a price set today.
a. Forward contract
b. Currency Swap
c. Put option
d. Call option
