Question 1A

Which of the following is NOT true regarding IRP, PPP, IFE and FEP?

Question options:

	FEP states that any forward premium or discount is equal to the change in the exchange rate.
	IFE suggests that a currency's spot rate will change according to interest rate differentials.
	IRP suggests that a currency's spot rate will change according to interest rate differentials.
	PPP suggests that a currency's spot rate will change according to inflation rate differentials.

Question 1B

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

Question options:

	higher; weaken
	lower; weaken
	lower; strengthen
	higher; strengthen

Question 1C

Assume that the U.S. and Chile nominal interest rates are equal. Then, the U.S. nominal interest rate increases while the Chilean nominal interest rate remains stable. According to the International Fisher effect, this implies expectations of ____ than before, and that the Chilean peso should ____ against the dollar.

Question options:

	lower U.S. inflation; depreciate
	higher U.S. inflation; appreciate
	lower U.S. inflation; appreciate
	higher U.S. inflation; depreciate

Question 1D

Which of the following theories suggests that the percentage difference between the forward rate and the spot rate depends on the interest rate differential between two countries?

Question options:

	purchasing power parity (PPP)
	international Fisher effect (IFE)
	interest rate parity (IRP)
	forward expectation parity (FEP)

Question 2A

Question options:Which of the following is true?

	If the IFE theory holds, it means that covered interest arbitrage is not feasible.
	Interest rate parity can only hold if purchasing power parity holds.
	If interest rate parity holds, then the international Fisher effect must hold.
	None of the above.

Question 2B

If the spot rate of the euro in one year is $1.02, what is Joanns percentage return from her strategy?Joann Stark does not believe that the international Fisher effect (IFE) holds. Current one-year interest rates in Europe are 20 percent, while one-year interest rates in the U.S. are 5 percent. Joann converts $100,000 to euros and invests them in France. One year later, she converts the euros back to dollars. The current spot rate of the euro is $1.20.

Question options:

	2.00%
	2.45%
	102.00%
	14.18%

Question 2C

1. Conver $100,000 to euros at the current spot rate of euro (given in the problem).

2. Invest euro converted for one year to earn one-year interest rates in Europe.

3. Convert the amount of euros after one-year investment back to $ using the spot rate one year later (given in the problem).

4. Yield (or return) = (the amount of USD from step 3 - $100,000)/$100,000.

Question 2D

Continued from above, what must the spot rate of the euro be in one year for Joann's strategy to be successful?

Question options:

	As long as the spot rate is below $1.02 per euro, Joanns strategy can be successful.
	As long as the spot rate is below $1.05 per euro, Joanns strategy can be successful.
	As long as the spot rate is above $1.02 per euro, Joanns strategy can be successful.
	As long as the spot rate is above $1.05 per euro, Joanns strategy can be successful.

Question 3A

Future spot exchange rate by IFE is:

S(t)1+ih1+if.{"version":"1.1","math":"S(t) \times \frac{1+i_h}{1+i_f}."}

Question 3B

Given a home country and a foreign country, international Fisher effect (IFE) suggests that:

Question options:

	a home currency will depreciate if the current foreign interest rate exceeds the current home interest rate.
	a home currency will appreciate if the current foreign inflation rate exceeds the current home inflation rate.
	a home currency will depreciate if the current foreign inflation rate exceeds the current home inflation rate.
	a home currency will appreciate if the current foreign interest rate exceeds the current home interest rate.

Question 3C

Assume that the U.S. inflation rate rate is higher than the New Zealand inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the U.S. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).

Question options:

	increase; increase; appreciation
	reduce; increase; appreciation
	increase; reduce; appreciation
	reduce; increase; depreciation