MNCs are able to tap into financial market arbitrage because a. PPP is facilitating the process of financial market arbitrag O b. Interest rate parity and international fisher effects do not O c. There are different national government policies in place Od. None of the options in this question Clear my choice h
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- Excess funds can be used for domestic or foreign short-term investments. In some instances short-term securities on the international market will have higher interest rates than domestic interest rates and will therefore be pursued by an MNC. However, what are all the possible conditions that are expected to hold and for the MNC to consider : A) International Fisher Effect B) Exchange Rate Forecasting results C) Negative Effective Yield of the investment D) Interest Rate Parity E) Non-Diversified options for cash across currencies on the international market 1. C, D and E 2. A, B and D 3. A, B and C 4. A, B, C and DOnce capital markets are integrated, it is difficult for a country to maintain a fixed exchange rate. Why? a. The market forces may be stronger than the exchange rate intervention that the govemment can muster. O b. Portfolio managers will not invest in countries with fixed exchange rates. c. Both a and b are correct. O d. None of the above.1) What id the essential purpose for financial markets? 2) Which is more important, the primary market for stocks of the secondary market? Why? 3) How does a ponzi scheme work? 4) Discuss some of the forces that help make markets efficient? 5) What are institutional investors? Why are they needed in our economy? 6) What are some of the differences between a forward contract and a future contract?
- Which of the following statements is (are) FALSE? Select one or more alternatives: Studies suggest that forward exchange rates are unbiased predictors for future spot exchange rates in internationally integrated capital markets. If arbitrageurs have sufficient capital to trade on risk-free opportunities instantaneously, we will see persistent deviations from covered interest parity. If both uncovered interest parity hypothesis and covered interest parity hypothesis hold, we can predict what the spot exchange rate will be in one year from today based on today's one-year forward exchange rate. If forward exchange rates deviate from synthetic forward rates defined by covered interest rate parity, there will be risk-free arbitrage opportunities in efficient capital markets.What is the role of regulators in the financial markets? Why are financial assets important to growth of an economy? In what ways do exchanges reduce contracting costs and risks? Is trading in an OTC market more risky for a trader than trading in an exchange? How so? What is the difference between Fed funds rate and the discount window rate?2. If the value of the financial sector is in terms of reducing the individual risk in the economy, how could you measure the value of the financial sector without using information on loan payments (broadly construed to include any interest payment necessary to measure an interest rate or any payment that looks like a return on an investmemt)? If we think of the amount of individual risk remaining after individuals buy portfolios is a measure of the ineffectiveness of the financial sector [or its imperfections], what do you think accounts for these imperfections?
- Match macroprudential instruments with the types of measures. (you can also write down the matches in your answers, no need to fill in the blanks below!) Liquidity-Related Macroprudential Instruments/Types Limits on Net Open Currency Positions/Currency Mismatch Caps on Foreign Currency Lending Time-Varying/ Dynamic Provisioning Restrictions on Profit Credit-Related Capital-Related Distribution Caps on the LTVWhich of the following factors would best justify a decision to avoid investing in a country's sovereign debt? A.Suitable checks and balances in policy making B.Freely floating currency C.A population that is shrinkingWith a dirty float system, Answer 1. market forces and the countryƉs stock of gold determine its exchange rate. 2. central banks may intervene to affect the value of a country's currency. 3. market forces do not play a role in determining the value of a currency. 4. the International Monetary Fund and the Groups of Five and Seven determine fixed exchange rates.
- A key issue facing financial executives of multinational firms is exposure to exchange rate changes.a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play?b. Describe at least three circumstances under which economic exposure is likely to exist? c. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b? d. What is exchange risk, as distinct from exposureMerck is an example of a company who decided to mitigate the adverse impact of market fluctuations by entering into hedging agreements using: B. Interest rate swaps C. Both A & B A. Currency options D. Neither A or BThe RBA decides to buy bonds and securities from commercial banks on the open market. Other things being equal, this will result in a(n) _________ in the price of financial assets. short term increase, but longer-term fall increase decrease short term decrease, but longer-term rise no change