1. Because the forward rate does not take into account the nominal interest rate between two countries, it should provide a less accurate forecast for currencies in high-inflation countries than the spot rate.

Select one:

True

False

2. An increase in the supply of British pounds to be exchanged for U.S. dollars should result in a(n) ____ in the value of the British pound with respect to ____, other things being equal.

Select one:

a.increase; U.S. dollar

b.increase; nondollar currencies

c.decrease; nondollar currencies

d.decrease; U.S. dollar

3.As locational arbitrage occurs due to the following bid and ask rates of the pound for two banks shown below, what actions will result?

	Bid	Ask
Bank A	$1.45	$1.46
Bank B	$1.43	$1.44

Select one:

a.the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will increase.

b.the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will decrease.

c.the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will decrease.

d.the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will increase.

3.If U.S. interest rates increase relative to French interest rates, it would likely ____ the U.S. demand for euros and ____ the supply of euros for sale.

Select one:

a.increase; reduce

b.reduce; increase

c.reduce; reduce

d.increase; increase

Which of the following strategies is mentioned in the text as a possible way for a government to improve its balance of trade position (increase exports or reduce imports).

Select one:

a.It could attempt to increase its home currency's value.

b.It could attempt to reduce its home currency's value.

c.The government could require that its local firms pursue outsourcing.

d.It could attempt to reduce interest rates.

A central bank's direct intervention efforts have a higher likelihood of affecting the natural equilibrium exchange rate for a currency than indirect intervention methods.

Select one:

True

False

All of the following affect the value of a MNC, except:

Select one:

a.Amount of MNC's cash flows in particular currency

b.MNC's required rate of return

c.The exchange rate at which cash flows are converted to dollars

d.The value of MNC depends on all of the above factors