Multiple Choice Questions

CH 1
Answers
Multiple Choice Questions
1. E 8. E 15. E
2. E 9. E 16. A
3. E 10. C 17. D
4. E 11. E 18. E
5. D 12. A
6. B 13. D
7. E 14. E

CH 2
Answers
Multiple Choice Questions
1. C 11. B 21. E
2. C 12. E 22. A
3. B 13. E 23. C
4. B 14. E 24. D
5. D 15. B 25. C
6. E 16. D 26. A
7. A 17. D 27. D
8. D 18. E 28. B
9. A 19. C
10. D 20. E

CH 3
Answers
Multiple Choice Questions
1 B 9. B 17. D
2. C 10. A 18. E
3. B 11. A 19. C
4. D 12. B 20. D
5. E 13. D 21. C
6. A 14. A
7. C 15. D
8. E 16. A
CH 4
Answers
Multiple Choice Questions
1 B 9. B 17. D
2. C 10. A 18. E
3. B 11. A 19. C
4. D 12. B 20. D
5. E 13. D 21. C
6. A 14. A
7. C 15. D
8. E 16. A
9. D 18. B
CH 5
Answers
Multiple Choice Questions
1. E 11. B 21. C
2. B 12 B 22. A
3. C 13. B 23 B
4. C 14. E 24 A
5. B 15. E 25. C
6. B 16. C 26. E
7. D 17. D 27. B
8. A 18. A 28. A
9. B 19. D 29. D
10. B 20. A
Solutions
16. Solution: use Equation (5-4) [(.32 - .30)/.30] x (360/180) = 13.3%
17. Solution: use Equation (5-4) [(.30 - .32)/.32] x (360/180) = -12.5%
18. Solution: cross rate .28/.86 = .3256
19. Solution: cross rate DM.31/FF: FF1/DM.31 = FF3.23/DM FF3.23/$.35 = FF9.228/$
20. Solution: use Equation (5-1) [(.0045 - .0035)/.0035 = 29%
21. Solution: use Equation (5-8) [(.3864 - S)/S) x (360/90)] = .10 - .04 S = .3807
22. Solution: use Equation (5-6). Remember that Cr$3342.63 = $0.0002991. new exchange rate = $0.0002991[(1 + .05)/(1 + .90)] = $.0001652/Cr$; or Cr$1/$.0001653 = Cr$6053.27/$
23. Solution: Use Equation (5-7): nominal rate = real rate + inflation rate. nominal rate = 5% + 4% = 9% Solution: invest in the U.S.: $10,000 x 1.01 = $10,100 invest in the U.K. and cover in the forward market. buy pounds at the present spot rate: $10,000/1.8 = £5,555 invest in the U. K: £5,555 x 1.015 = £5,638 sell pounds forward: £5,638 x 1.78 = $10,036 The investor would earn $64 more by investing in the United