1.A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate is $.54. This call option can be referred to as:

A. in the money.

B.at a discount.

C.at the money.

D. out of the money.

2.According to the international Fisher effect, if Venezuela has a much lower nominal rate than other countries, its inflation rate will likely be ____ than other countries, and its currency will ____.

A. lower; strengthen

B. higher; strengthen

C. higher; weaken

D. lower; weaken

3.Assume that interest rate parity holds. The Mexican interest rate is 15%, and the U.S. interest rate is 8%. Subsequently, the U.S. interest rate decreases to 7%. According to interest rate parity, the pesos forward ____ will ____.

A.discount; decrease

B.premium; decrease

C.discount; increase

D.premium; increase

4.Which of the following is not an example of direct intervention in foreign exchange markets?

A. b and c above.

B. increasing the inflation rate.

C. exchanging dollars for foreign currency.

D. lowering interest rates.