International Finance Mcq

1. Assume the current U.S. dollar-British spot rate is 0.6993£/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%, what is the approximate forward exchange rate for 360 days? A) 1.42£/$ B) 1.43£/$ C) 0.6993£/$ D) 0.7060£/$ E) 0.6927£/$ Answer: D
2: You are given the following exchange rate quotes in Sydney:
|USD/AUD |0.5366 |
|AUD/EUR |1.6428 |
|USD/EUR |0.8782 |

Calculate the US dollar profit, if any, on a three-point arbitrage. A*: USD0.0038 for every 1 USD invested B: USD0.2320 for every 1 USD invested C: USD1.0043 for every 1 USD invested D: Nil E. USD0.01873 for every 1 USD invested
3. If the gross domestic return is higher than the gross covered foreign return then: A: the interest parity forward rate is lower than the actual forward rate. B: the interest rate differential is lower than the forward spread. C*: the interest parity forward rate is higher than the actual forward rate. D: the forward discount is higher than the interest rate differential in favor of the domestic currency assets. E: none of the above.
4. If the net foreign return is lower than the domestic interest rate then: A: the interest parity forward rate is lower than the actual forward rate. B*: the interest parity forward rate is higher than the actual forward rate. C: the interest rate differential is lower than the forward spread. D: the forward discount is higher than the interest differential in favor of the home currency assets. E: none of the above.
5. If the interest rate differential is three per