MBA 624 Midterm UPDATED ACTUAL Questions and CORRECT Answers
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Course
MBA 624
Institution
MBA 624
MBA 624 Midterm UPDATED ACTUAL
Questions and CORRECT Answers
Eurodollar - CORRECT ANSWER- A US firm has chosen to deposit money in a British
bank and have it denominated in US Dollars. This is an example of a ______________
deposit.
Covered Interest Arbitrage (CIA) - CORRECT ANSWER- When th...
MBA 624 Midterm UPDATED ACTUAL
Questions and CORRECT Answers
Eurodollar - CORRECT ANSWER✔✔- A US firm has chosen to deposit money in a British
bank and have it denominated in US Dollars. This is an example of a ______________
deposit.
Covered Interest Arbitrage (CIA) - CORRECT ANSWER✔✔- When the spot and forward
exchange markets are not in equilibrium as described by interest rate parity, the potential for
"riskless" arbitrage profit exists. This is called__________ ____________ ____________.
Dollarization - CORRECT ANSWER✔✔- On September 9, 2000 Ecuador replaced its
national currency, the Ecuadorian sucre, with the US Dollar. This practice is known as
______________.
International Fisher Effect - CORRECT ANSWER✔✔- The relationship between the %
chance in the spot exchange rate over time and the differential between comparable interest
rates in different national capital markets is known as the ______________ ___________
____________.
toward; purchasing a currency on the spot market and selling in the forward market narrows
the differential between the two - CORRECT ANSWER✔✔- Covered interest arbitrage
moves the market _________ equilibrium b/c _____________.
£0.55/€ - CORRECT ANSWER✔✔- From the viewpoint of a British investor, which of the
following would be a direct quote in the foreign exchange market?
Purchase price or sale price - CORRECT ANSWER✔✔- A forward contact can be used to
lock in the ___________ ______ __ ______ ________ of a specified currency for a future
point in time.
Cash Flow Statement - CORRECT ANSWER✔✔- The Balance of Payments is most like
a(n) ____ _____ _____________.
, 115.75¥/$ - CORRECT ANSWER✔✔- The Economist publishes annually the "Big Mac
Index" by which they compare the prices of the McDonald's Corporation's Big Mac
hamburger around the world. The index estimates the exchange rates for currencies based on
the assumption that the burgers in question are the same across the world and therefore, the
price should be the same. If a Big Mac costs $2.54 in the United States and 294 yen in Japan,
what is the estimated exchange rate of yen per dollar as hypothesized by the Big Mac index?
0.7060 £/$ - CORRECT ANSWER✔✔- Assume the current U.S. dollar-British spot rate is
0.6993£/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable
rate in Britain is 6%, what is the approximate forward exchange rate for 360 days?
Interest Rate Parity (IRP) - CORRECT ANSWER✔✔- The forward rate differs from the spot
rate by a sufficient amount to offset the interest rate differential between two currencies.
The Swiss demand for dollars to increase and the dollar will appreciate against the Swiss
franc. - CORRECT ANSWER✔✔- Assume that Swiss investors have francs available to
invest in securities, and they initially view U.S. and British interest rates as equally attractive.
Now assume that U.S. interest rates increase while British interest rates stay the same. This
would likely cause:
Risk-Sharing - CORRECT ANSWER✔✔- A U.S. timber products firm has a long-term
contract to import unprocessed logs from Canada. To avoid occasional and unpredictable
changes in the exchange rate between the U.S. dollar and the Canadian dollar, the firms agree
to split between the two firms the impact of any exchange rate movement. This type of
agreement is referred to as ____-_________
Borrow money in the foreign currency in question - CORRECT ANSWER✔✔- Which one
of the following management techniques is likely to best offset the risk of long-run exposure
to receivables denominated in a particular foreign currency?
Operating, Financing - CORRECT ANSWER✔✔- ____________ cash flows arise form
intracompany and intercompany receivables and payments while __________ cash flows are
payments for the use use of loans and equity.
Option - CORRECT ANSWER✔✔- A foreign currency _______ gives the purchaser the
right, not the obligation, to buy a given amount of foreign exchange at aa fixed price per unit
for a specified period.
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