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Homework answers / question archive / Copenhagen Business School FINANCE Corporate Quiz 9 Question 1)According to the International Fisher Effect real interest rates are: The same across all countries

Copenhagen Business School FINANCE Corporate Quiz 9 Question 1)According to the International Fisher Effect real interest rates are: The same across all countries

Finance

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.

 

 

Question 4

If the inflation rate increases but the nominal interest rate does not move then real interest rates must:

  • Increase.
  • Decrease.
  • They are not affected.
  • None of the above.

 

Question 5

Your local bank has provided quotes on the following exchange rates between US dollars, Euros, and British Pounds: S_{USD/EUR} = 1.0885, S_{GBP/EUR} = 0.7333, and S_{GBP/USD} = 0.6737. Is the exchange rate between US dollars and Euros misspecified?

(Round to 4 decimals)

  • S_{USD/EUR} is too high.
  • S_{USD/EUR} is consistent with the other quotes.
  • S_{USD/EUR} is too low.
  • None of the above.

 

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