Part I: Multiple Choice (15 questions, Go points) 1. (4 points) Bid-ask spread a. associates a domestic interest rate with other foreign interest rates b, compares the e. shows the d. relates a direct quotation to a corresponding indirect quotation spot exchange rate and the forward exchange rate among currencies e price at which you can buy and the price at which you can sell together 2. (4 points) Dollarization usually occurs in the countries adopting a. free float (ex. Canada, United Kingdom) b. pegged float (ex. Hong Kong, Denmark) c. managed float (ex. India, Turkey) Y. no national currency (ex. Panania, Ecuador) 3. (4 points) European Monetary Union a. increases transaction costs bet ween European financial institutions b. discourages political cooperation among participating countries c. allows each participating country to implement monetary policies independently d. promotes cross-border investments 4. (4 points) The spot exchange rate between US dollar and Canadian dollar today is $0.8/CS and the spot exchange rate between US dollar and British pound () is $1.4/1Then the cross rate between Canadian dollar and British pound (i.e. CS/) is n. C$1.75/ b. C$1.12/ c. C$0.89/ d. C$0.57/ 5. (4 points) For British people, an indirect quotation is a. 0.92/ b. GBP1.75/USD C. S(5) = 0.0068 d. EUR1.14/GBP (Hint: The national currency of United Kingdom is pound ( or GBP) currently.)