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Intern Finance Fall 2010 Quiz 2 solNameStudent idPlease write your answers in the space providedOnly the final answer will be gradedImportantAlways keep at least 4 decimal points while performing your calculations1 Which of the following is NOT a MAIN participant in the ForEx marketaRetail customers bCommercial banks cForeign exchange brokersdCentral bankseNone of the above ie all of the above are main participants in the FoRex2 Ideal Exchange Rate System involves everything below EXEPTa Fixed exchange ratesb Convertibility no impediments to currency conversionsc Fractional reserve bankingd Independent monetary policies3 The biggest problem economists have with inflation is thata the law of one price stops workingb inflationary expectations lead to an acceleration of inflationc monetary policy stops workingd floating exchange rate regime becomes difficult to sustaine currency becomes undervalued 4 What can you say aboutspot exchange rate if the same basket of goods costs 1500 in the US and 500 in the UK and the RPPP holdsa It must be exactly equal to 3b It must be exactly equal to 03333c It must be approximately equal to 3d It must be approximately equal to 03333e None of the above1
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