please answer the following 7 qustion: 1.Assume a central bank exchanges its cur
ID: 2741399 • Letter: P
Question
please answer the following 7 qustion:
1.Assume a central bank exchanges its currency for other foreign currencies in the foreign exchange market, and adjusts for the resulting change in the money supply simultaneously. This is an example of:
A
indirect intervention.
B
nonsterilized intervention.
C
sterilized intervention.
D
pegged intervention.
2.The current spot rate of pound is $1.80, and the 90-day forward rate of pound is $1.90. The pound has a forward ______ of ______.
A
premium, 5.56%.
B
premium, 4.87%.
C
discount, 5,56%.
D
discount, 4.87%.
3.Which one is a disadvantage of a freely floating exchange rate system?
A
It can adversely affect a country that has high unemployment.
B
It can adversely affect a country that has high inflation
C
A country is more insulated from unemployment problem in other countries.
D
a and b above.
4.If interest rates on the euro are consistently above U.S. interest rates, then for the international Fisher effect (IFE) to hold:
A
the value of the euro would remain constant most of the time.
B
the value of the euro would often depreciate against the dollar.
C
the value of the euro would appreciate in some periods and depreciate in other periods, but on average have a zero rate of appreciation.
5.American currency options can be exercised ____; European currency options can be exercised ____.
A
only on the expiration date; only on the expiration date
B
any time up to the expiration date; only on the expiration date
C
any time up to the expiration date; any time up to the expiration date
D
only on the expiration date; any time up to the expiration date
6.If you expect the British pound to depreciate, you could speculate by ____ pound call options or ____ pound put options.
A
selling; purchasing
B
selling; selling
C
purchasing; purchasing
D
purchasing; selling
7.A firm buys a currency futures contract, and then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:
A
selling a futures contract for a different amount of currency.
B
selling an identical futures contract.
C
buying an identical futures contract.
D
buying a futures contract with a different settlement date.
A
indirect intervention.
B
nonsterilized intervention.
C
sterilized intervention.
D
pegged intervention.
Explanation / Answer
Solution 1:
Indirect Intervention
Here the Central bank exchanges the home currency with the foreign currency. However, this is happening in the foreign exchange market. It is also going to affect the money supply of the country. Therefore, it is an indirect intervention to control the appreciation or depreciation of the currency.
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