Under a fixed exchange rate system:

Select one:

a. central bank intervention in the foreign exchange market is not necessary.

b. Central banks must offset any imbalance between demand and supply conditions for its currency in order to prevent its value from changing.

c. central bank intervention in the foreign exchange market is not allowed.

d. a foreign exchange market does not exist.

Assume that U.S. and British investors require a real return of 2%. If the nominal U.S. interest rate is 15%, and the nominal British rate is 13%, then according to the IFE, the British inflation rate is expected to be about .. the U.S. inflation rate, and the British pound is expected to ...

Select one:

a. 2 percentage points above; depreciate by about 2%

b. 3 percentage points above; depreciate by about 3%

c. 3 percentage points below; appreciate by about 3%

d. 3 percentage points below; depreciate by about 3%

e. 2 percentage points below; appreciate by about 2%

Assume that a U.S. firm can invest funds for one year in the U.S. at 12% or invest funds in Egypt at 14%. The spot rate of the Egyptian pound is $.10 while the one-year forward rate of the Egyptian pound is $.10. If U.S. firms attempt to use covered interest arbitrage, what forces should occur?

Select one:

a. spot rate of Egyptian pound increases; forward rate of Egyptian pound decreases.

b. spot rate of Egyptian pound decreases; forward rate of Egyptian pound increases.

c. spot rate of Egyptian pound decreases; forward rate of Egyptian pound decreases.

d. spot rate of Egyptian pound increases; forward rate of Egyptian pound increases.

.. exchange rate system allows currencys value to float on a daily basis, but the government can periodically intervene to achieve specific objectives.

Select one:

a. Managed Float

b. Fixed

c. Freely Floating

d. Pegged

e. A and C