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  14.3   The Demand for Foreign Currency Assets   1) What the expected

Question :   14.3   The Demand for Foreign Currency Assets   1) What the expected : 1925481

 

14.3   The Demand for Foreign Currency Assets

 

1) What is the expected dollar rate of return on euro deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.166 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

A) 10%

B) 11%

C) -1%

D) 0%

E) 15%

2) What is the expected dollar rate of return on dollar deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.165 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

A) 10%

B) 11%

C) -1%

D) 0%

E) 15%

3) What is the expected dollar rate of return on euro deposits with today's exchange rate at $1.167 per euro, next year's expected exchange rate at $1.10 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

A) 10%

B) 11%

C) -1%

D) 0%

4) The dollar rate of return on euro deposits is

A) approximately the euro interest rate plus the rate of depreciation of the dollar against the euro.

B) approximately the euro interest rate minus the rate of depreciation of the dollar against the euro.

C) the euro interest rate minus the rate of inflation against the euro.

D) the rate of appreciation of the dollar against the euro.

E) the euro interest rate plus the rate of inflation against the euro.

5) If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then an investor should

A) invest only in dollars.

B) invest only in euros.

C) be indifferent between dollars and euros.

D) invest only in dollars if the exchange rate is expected to remain constant.

E) invest only in euros if the exchange rate is expected to remain constant.

6) If the dollar interest rate is 4 percent, the euro interest rate is 6 percent, then

A) an investor should invest only in dollars.

B) an investor should invest only in euros.

C) an investor should be indifferent between dollars and euros.

D) invest only in dollars if the exchange rate is expected to remain constant.

E) invest only in euros if the exchange rate is expected to remain constant.

7) If the dollar interest rate is 10 percent, the euro interest rate is 6 percent, then

A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent.

B) an investor should invest only in euros an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent.

C) an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent.

D) an investor should invest only in dollars.

E) an investor should invest only in euros.

8) If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, and the expected return on dollar depreciation against the euro is 8 percent, then

A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent.

B) an investor should invest only in euros an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent.

C) an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent.

D) an investor should invest only in dollars.

E) an investor should invest only in euros.

9) If the dollar interest rate is 10 percent, the euro interest rate is 12 percent, then

A) an investor should invest only in dollars if the expected dollar depreciation against the euro is negative 4 percent.

B) an investor should invest only in euros an investor should invest only in dollars if the expected dollar depreciation against the euro is negative 4 percent.

C) an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar depreciation against the euro is negative 4 percent.

D) an investor should invest only in dollars.

E) an investor should invest only in euros.

10) In the beginning of 2009, you pay $100 for a share of stock that pays you a dividend of $1 at the beginning of 2010. If the stock price rises from $100 to $109 per share over the year:

A) then you have earned a rate of 5 percent over 2009.

B) then you have earned a rate of 1 percent over 2009.

C) then you have earned a rate of 9 percent over 2009.

D) then you have earned a rate of 4 percent over 2009.

E) then you have earned a rate of 10 percent over 2009.

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