1. Answer the following multiple choice questions (No explanation needed just choose the right answer) - Total mark 6 ( 1 mark each)

1. Which of the following statements is true?

1. If you have agreed to buy FX (i.e. foreign exchange) forward, you are short.
2. If you have agreed to sell FX (i.e. foreign exchange) forward, you are short.
3. If you have agreed to sell FX (i.e. foreign exchange) forward, you are long.

2. ABC Co. has 1,000,000 euros as payables due in 30 days, and is certain that the euro will depreciate substantially over time. Assuming that the firm is correct, the ideal strategy is to:

1. borrow euros for 30 days.
2. sell euros 30 day forward.
3. remain unhedged.
4. buy euros 30 day forward.

3. A US-based MNC expects to receive $20,000 from domestic operations and 20,000 British pounds () from a business in England. If the pound's value is $1.3725, the expected total dollar cash flows are:

1. $45,000
2. $33,350
3. $43,200
4. $47,450

4. As soon as deviations from Interest Rate Parity (IRP) are detected, informed traders will immediately carry out covered interest arbitrage transactions and as a result of these arbitrage activities, IRP will be restored quite quickly.

a)True

b)False

5. Assume the Canadian dollar is equal to 0.51 and the Peruvian Sol is equal to 0.16. The value of the Peruvian Sol in Canadian dollars is:

1. about 0.3937 Canadian Dollars
2. about 0.3137 Canadian Dollars
3. about 1.3137 Canadian Dollars
4. about 3.1370 Canadian Dollars

6. The primary component of the current account is the:

1. balance of capital market flows
2. balance of trade
3. balance of money market flows