FIN535 Final Exam

FIN535 Final Exam

FIN535 Final Exam

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FIN535 Final Exam
FIN 535 Final Exam Solution (Chapter 8-21)
All possible questions with answers.
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Strayer
Chapters 8 Through 21
Chapter 8—Relationships among Inflation, Interest Rates, and Exchange Rates
1. Assume a two-country world: Country A and Country B. Which of the following is correct about purchasing power parity (PPP) as related to these two countries?
a. If Country A’s inflation rate exceeds Country B’s inflation rate, Country A’s currency will weaken.
b. If Country A’s interest rate exceeds Country B’s inflation rate, Country A’s currency will weaken.
c. If Country A’s interest rate exceeds Country B’s inflation rate, Country A’s currency will strengthen.
d. If Country B’s inflation rate exceeds Country A’s inflation rate, Country A’s currency will weaken.
2. Given a home country and a foreign country, purchasing power parity (PPP) suggests that:
a. a home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate.
b. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.
c. a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.
d. a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
3. The international Fisher effect (IFE) suggests that:
a. a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate.
b. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate.
c. a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate.
d. a home currency will depreciate if the current home inflation rate exceeds...

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