Question

1. 27

The 1-year interest rates on Canadian dollar and U.K. pound are 2 % and 5 % respectively. If the current spot rate is 2 Canadian dollar per pound, then the 1-year forward rate (F _{Canadian $/£} ) implied by the covered interest rate parity approximation would be______.

Select one:

a. 2.15

b. 2.06

c. 1.94

d. 0.97

1.29

If the spot exchange rate between dollars and pounds is equal to 1.8 dollars for one U.K. pound and the nine-month forward rate equals 1.6 dollars for one U.K. pound, then _________.

Select one:

a. the dollar is selling flat

b. the U.K. pound is selling at a forward premium

c. the U.K. pound is selling at a forward discount

d. the dollar is selling at a forward discount

1.33

If U.S. residents increased their imports of cheese from Switzerland, the Swiss central bank would need to ________ in the foreign exchange market to maintain the fixed exchange rate of the Swiss franc against the U.S. dollar.

Select one:

a. sell U.S. treasury bonds

b. buy U.S. dollars and sell Swiss francs

c. buy Swiss government bonds

d. sell U.S. dollars and buy Swiss francs

Answer 1

33

If U.S. residents increased their imports of cheese from Switzerland, the Swiss central bank would need to ________ in the foreign exchange market to maintain the fixed exchange rate of the Swiss franc against the U.S. dollar.

d. sell U.S. dollars and buy Swiss francs

When the demand of cheese increases, so does the demand for Euros. To maintain the fixed exchange rate, the Swiss gov. would buy US dollars and sell Swiss francs.

Please post other questions separately.