Copenhagen Business School

FINANCE Corporate

Quiz 9

Question 1)According to the International Fisher Effect real interest rates are:

• The same across all countries.
• Determined by competition.
• Equal to the nominal interest rate.
• None of the above.

Question 2

You notice the following exchange rates currently available in the market. They are S_{USD/DKK}

= 0.2, S_{EUR/USD} = 0.8, and S_{DKK/EUR} = 7.5. Exchanging DKK 100 into first USD and then EUR is better than exchanging directly from DKK to EUR.

• This implies that S_{DKK/EUR} = 7.5 is incorrect.
• It implies that two out of the three exchange rates are out of equilibrium.
• It is not possible to know which exchange rate(s) is out of equilibrium.
• None of the above.

Question 3

If nominal interest rates are higher in Japan compared to Brazil then you should expect:

• The Japanese currency to be worth less than the Brazilian currency.
• To get a higher real return on investments in Brazil compared to Japan.
• That interest rates in Japan will increase in the future and that interest rates in Brazil will decrease in the future.
• None of the above.