Once capital markets are integrated, it is difficult for a country to maintain a fixed exchange rate. Why? O a. The market forces may be stronger than the exchange rate intervention that the government can muster. O b. Portfolio managers will not invest in countries with fixed exchange rates. c. Both a and b are correct. O d. None of the above.
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- Which of the following is not an argument for central bank intervention? Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the macroeconomy. The market knows better than economic policy makers what the appropriate level of the exchange rate is. Central bank intervention can smooth out fluctuations in exchange rates.Does arbitrage destabilize foreign exchange markets? If yes, which argument do yousupport? offer your own opinion on this issue.Discuss the following barriers to international diversification. 1. Segmented markets2. Lack of liquidity3. Exchange rate controls4. Less developed capital markets5. Exchange rate risk6. Lack of information
- Answer the following: a. Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium. b. Explain why overshooting occurs. What can the Central Bank do to mitigate its effects?Because capital flows were an important element in the currency crises, it has been advocated that emerging markets countries avoid the financial instability by restricting capital mobility. Assess the extent to which you agree with this statement.Does Arbitrage destabilize foreign exchange markets? Support your logic about that statement
- Moral hazard is a barrier to financing global growth because: OPTIONS: if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms. firms sometimes have trouble determining whether they need funds or not. there is the possibility that the funds are used for riskier behavior than the lender agreed to. of the differences between financing using loans, portfolio investment and foreign direct investment.Which of the following statements is the MOST accurate? A) International trade in assets can make both parties to the trade better off by allowing them to reduce the riskiness of return by portfolio diversification. B) International trade in assets can make both parties to the trade worse off by allowing them to increase the riskiness of return by portfolio diversification. C) International trade in assets can make both parties to the trade worse off by allowing them to eliminate all risk by portfolio unification. D) International trade in assets can make both parties to the trade better off by allowing them to eliminate all risk by portfolio unification. do not plagiarise please thnkuForeign exchange risk may be best defined as:a. the chance of value change in foreign exchange ratesb. the chance that the demand for your currency will dropc. the chance that exchange rates will be fixedd. the political risk posed by foreign governments
- Which of the following is/are TRUE with respect to spot market liquidity? I. The market liquidity improves if more buyers and sellers willing to participate in the currency trading. II. The spot markets for heavily traded currencies such as the Euro and Pound are very liquid. III. A currency's liquidity affects the ease with which an MNC can obtain or sell that currency. IV. If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate. A. I, II, III B. I, III, IV C. II, III, IV D. I, IIWhich of the following statements is (are) FALSE? Select one or more alternatives: Studies suggest that forward exchange rates are unbiased predictors for future spot exchange rates in internationally integrated capital markets. If arbitrageurs have sufficient capital to trade on risk-free opportunities instantaneously, we will see persistent deviations from covered interest parity. If both uncovered interest parity hypothesis and covered interest parity hypothesis hold, we can predict what the spot exchange rate will be in one year from today based on today's one-year forward exchange rate. If forward exchange rates deviate from synthetic forward rates defined by covered interest rate parity, there will be risk-free arbitrage opportunities in efficient capital markets.Excess funds can be used for domestic or foreign short-term investments. In some instances short-term securities on the international market will have higher interest rates than domestic interest rates and will therefore be pursued by an MNC. However, what are all the possible conditions that are expected to hold and for the MNC to consider : A) International Fisher Effect B) Exchange Rate Forecasting results C) Negative Effective Yield of the investment D) Interest Rate Parity E) Non-Diversified options for cash across currencies on the international market 1. C, D and E 2. A, B and D 3. A, B and C 4. A, B, C and D