# FIN 535 Week 11 Final Exam Part 1

Aug 9th, 2016
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Question 1 The international Fisher effect (IFE) suggests that: Answer a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate. a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate. a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate. Question 2 Which of the following theories suggests the percentage change in spot exchange rate of a currency should be equal to the interest rate differential between two countries? Answer absolute form of PPP. relative form of PPP. international Fisher effect (IFE). interest rate parity (IRP) Question 3 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? Answer

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FIN 535 Week 11 Final Exam Part 1Question 1The international Fisher effect (IFE) suggests that:Answera home currency will depreciate if the current home interest rate exceeds the current foreigninterest rate.a home currency will appreciate if the current home interest rate exceeds the current foreigninterest rate.a home currency will appreciate if the current home inflation rate exceeds the current foreigninflation rate.a home currency will depreciate if the current home inflation rate exceeds the current foreigninflation rate.Question 2Which of the following theories suggests the percentage change in spot exchange rate of acurrency should be equal to the interest rate differential between two countries?Answerabsolute form of PPP.relative form of PPP.international Fisher effect (IFE).interest rate parity (IRP)Question 3Assume a two-country world: Country A and Country B. Which of the following is correct aboutpurchasing power parity (PPP) as related to these two countries?AnswerIf Country A's inflation rate exceeds Country B's inflation rate, Country A's currency willweaken.If Country A's interest rate exceeds Country B's inflation rate, Country A's currency will weaken.If Country A's interest rate exceeds Country B's inflation rate, Country A's currency willstrengthen.If Country B's inflation rate exceeds Country A's inflation rate, Country A's currency willweaken.Question 4If interest rates on the euro are consistently below U.S. interest rat

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