FIN 375 EXAM 2 WITH 100% COMPLETE
SOLUTIONS (ALREADY PASSED)
An English company that _____ automotive parts from France payable in euros in 90
days is most likely to ___ when the _______ is __________. - Answer- imports, hedge,
pound, depreciating
A _________ contract is between a bank and its customer and requires a fixed delivery
date, at a fixed exchange rate for a specified amount of a foreign currency to be
delivered or purchased. - Answer- Currency forward
__________ is the process that ___ the exchange rate risk involved in transactions that
involve international currencies. - Answer- Hedging, mitigates
According to the ____________ theory, a currency with the ______ expected interest
rate is expected to _____ relative to one with a _____ expected rate. - Answer-
International Fisher Effect, lower, appreciate, higher
A rise in the expected inflation rate in one nation relative to others will be associated
with a depreciation in the first nation's exchange rate and with an increase of its
expected interest rate relative to the foreign interest rates. The two conditions combined
result in the __________ Effect. - Answer- International Fisher
If the future inflation rates in the U.S. and France in January 1991 were expected to be
4% and 7% per annum, respectively, then, according to purchasing power parity, the
future euro to U.S. dollar spot rate in 3 years ___. - Answer- would depreciate against
the U.S. dollar
Suppose the direct quote in New York City for the Canadian dollar is US$.76/C$ and the
180 day forward rate is US$.74/C$. The difference in the two rates would most likely to
mean that ________. - Answer- U.S. inflation in the coming year is expected to be less
than the Canadian rate of inflation
When exchange rates are at ____, there is little to no pressure on the rates to change. -
Answer- parity
When hedgers use the 30, 90 and 180 day forward rates to predict the direction
exchanges rate might move in the future, they are using the __________ condition. -
Answer- unbiased forward rate
SOLUTIONS (ALREADY PASSED)
An English company that _____ automotive parts from France payable in euros in 90
days is most likely to ___ when the _______ is __________. - Answer- imports, hedge,
pound, depreciating
A _________ contract is between a bank and its customer and requires a fixed delivery
date, at a fixed exchange rate for a specified amount of a foreign currency to be
delivered or purchased. - Answer- Currency forward
__________ is the process that ___ the exchange rate risk involved in transactions that
involve international currencies. - Answer- Hedging, mitigates
According to the ____________ theory, a currency with the ______ expected interest
rate is expected to _____ relative to one with a _____ expected rate. - Answer-
International Fisher Effect, lower, appreciate, higher
A rise in the expected inflation rate in one nation relative to others will be associated
with a depreciation in the first nation's exchange rate and with an increase of its
expected interest rate relative to the foreign interest rates. The two conditions combined
result in the __________ Effect. - Answer- International Fisher
If the future inflation rates in the U.S. and France in January 1991 were expected to be
4% and 7% per annum, respectively, then, according to purchasing power parity, the
future euro to U.S. dollar spot rate in 3 years ___. - Answer- would depreciate against
the U.S. dollar
Suppose the direct quote in New York City for the Canadian dollar is US$.76/C$ and the
180 day forward rate is US$.74/C$. The difference in the two rates would most likely to
mean that ________. - Answer- U.S. inflation in the coming year is expected to be less
than the Canadian rate of inflation
When exchange rates are at ____, there is little to no pressure on the rates to change. -
Answer- parity
When hedgers use the 30, 90 and 180 day forward rates to predict the direction
exchanges rate might move in the future, they are using the __________ condition. -
Answer- unbiased forward rate
