Futures Contract and Spot Rate

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PART I. MULTIPLE CHOICE QUESTIONS

1. When the value of the British pound changes from $1.50 to $1.25, then the pound has _________ and the dollar has _________. a. appreciated; appreciated
b. depreciated; appreciated
c. appreciated; depreciated
d. depreciated; depreciated

2. When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar, then the euro has _________ and the dollar has _________. a. appreciated; appreciated
b. depreciated; appreciated
c. appreciated; depreciated
d. depreciated; depreciated

3. If the dollar _________ from 1.2 euros per dollar to 0.8 euros per dollar, the euro _________ from 0.83 dollars to 1.25 dollars per euro. a. appreciates; appreciates
b. appreciates; depreciates
c. depreciates; depreciates
d. depreciates; appreciates

4. If the dollar appreciates from 0.8 euros per dollar to 1.2 euros per dollar, the euro depreciates from _________ dollars to _________ dollars per euro. a. 1.25; 0.83
b. 0.83; 1.25
c. 0.67; 1.50
d. 1.50; 0.67

5. If the dollar depreciates relative to the Swiss franc, _________. a. Swiss chocolate will become more expensive in the United States. b. American computers will become less expensive in Switzerland. c. Swiss chocolate will become cheaper in the United States. d. both A and B of the above.

6. When the exchange rate for the euro changes from $1.20 to $1.00, then, holding everything else constant, the euro has _________. a. appreciated and German cars sold in the United States become more expensive. b. appreciated and German cars sold in the United States become less expensive. c. depreciated and American wheat sold in Germany becomes more expensive. d. depreciated and American wheat sold in Germany becomes less expensive.

7. If the demand for _________ goods decreases relative to _________ goods, the domestic currency will depreciate. a. foreign; domestic
b. foreign; foreign
c. domestic; domestic
d. domestic; foreign

8. As the relative expected return on dollar deposits increases, foreigners will want to hold more _________ deposits and less _________ deposits. a. foreign; foreign
b. foreign; dollar
c. dollar; foreign
d. dollar; dollar

9. As the relative expected return on dollar deposits increases, _________. a. Foreigners will want to hold fewer dollar deposits and more foreign deposits. b. Americans will want to hold more dollar deposits and less foreign deposits. c. Americans will want to hold fewer dollar deposits and more foreign deposits. d. Americans and foreigners will be indifferent towards holding dollar deposits or foreign deposits.

10. An increase in the foreign interest rate shifts the expected return schedule for _________ deposits to the _________ and causes the domestic currency to depreciate. a. domestic; right

b. domestic; left
c. foreign; right
d. foreign; left

11. A decrease in the foreign interest rate shifts the expected return schedule for _________ deposits to the _________ and causes the domestic currency to appreciate. a. domestic; right

b. domestic; left
c. foreign; right
d. foreign; left

12. A fall in the expected future exchange rate shifts the expected return schedule for _________ deposits to the _________ and causes the domestic currency to depreciate. a. domestic; right

b. domestic; left
c. foreign; right
d. foreign; left

13. An increase in the domestic interest rate shifts the expected return schedule for _________ deposits to the _________ and causes the domestic currency to appreciate. a. domestic; right

b....
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