1. Which of the following states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the different in nominal interest rates between the two countries?

A) law of one price B) purchasing power parity theory C) efficient market hypothesis D) international fisher effect E) theory if demand

2. An ------- market is on in which prices do not reflect all available information

A) free B) black C) inefficient D) perfect E) gray

3. A currency is said to be externally convertible when

A) both residents and nonresidents are allowed to purchase a limited amount of foreign currency with it. B) on residents may convert it into a foreign currency without any limitations. C) only nonresidents may convert it into a foreign currency without any limitation. D) Neither residents nor nonresidents are allowed to convert it into a foreign currency. E) The country's goverment allows both residents and non residents to purchase unlimited amounts of a foreign currency with it.

4. An american company sold heavy construction equipment to the goverment of Romania. Instead of recieving U.S dollars, the company agreed to take payment in the form of romanian goods. This is an example of

A) Short selling B) countertrade C) capital flight D) a carry trade E) arbitrage

5. The extent to which a firms future international earning power is affected by changes in exchange rates is known as

A) economic exposure B) carry trade C) translation exposure D)countertrade E) transaction exposure

6. Mark is the manager of american compnay. he expects the value of the british pound to appreciate in the near future. Hence, he delayes the collection of payments from british customers until the next month. Which tactic is mark making use of to minimize the foreign exchange exposure?

A) Spot exchange rate contracts B) buying swaps C)lead strategy D) lag strategy E) forecast strategy