International Finance Mcq

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1. Assume the current U.S. dollar-British spot rate is 0.6993£/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%, what is the approximate forward exchange rate for 360 days? A) 1.42£/$ B) 1.43£/$ C) 0.6993£/$ D) 0.7060£/$ E) 0.6927£/$ Answer: D
2: You are given the following exchange rate quotes in Sydney:
|USD/AUD |0.5366 |
|AUD/EUR |1.6428 |
|USD/EUR |0.8782 |
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A: The CIP hypothesis describes the equilibrium relationship between the spot exchange rate, the forward exchange rate, domestic interest rates and foreign interest rates. B: The CIP hypothesis describes the equilibrium relationship between the actual and the interest parity forward rate. C: The CIP hypothesis was originally developed by Keynes in the 1920s. D: The CIP hypothesis describes the equilibrium relationship between the forward discount (premium) on the home (foreign) currency and the gross real interest rate differentials. E: All of the above are true except D.

For questions 15-18, you are given the following information:

|Spot exchange rate (AUD/USD) |1.7662 |
|Australian three-month interest rate |4.85% pa |
|U.S. three-month interest rate |1.41% pa |

14. If CIP holds, what will be the three-month forward exchange rate (AUD/USD), according to the precise CIP formula? A: AUD/USD 1.8261 B: AUD/USD 1.7083 C: AUD/USD 1.7814 D*: AUD/USD 1.7813 E: AUD/USD 1.8268
15. If CIP holds, what will be the interest differential on domestic and foreign assets, according to the precise CIP formula? A*: 0.00857 B: 0.00860 C: 0.01213 D:
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