Key to Test 1 Study Problems
1-D, 2-C, 3-B, 4-C, 5-D, 6-C, 7-C, 8-A, 9-D, 10-D,
11-C, 12-C, 13-D, 14-A, 15-D, 16-F, 17-C, 18-D,
19-A, 20-A, 21-A, 22-D.
***Comments Updated****
For 19 you should try the following: change the phrase "inflation were expected to be" to "short term interest rates are". Then you can use the interest parity condition to solve for the "unknown"... in this case the forward exchange rate.
And be careful (19 and 20): Interest rates are quoted in ANNUALIZED rates, but in 19, the forward rate is 180 days (half a year). You will need to convert to "annual" or "half year" to get consistent rates. (I don't mean to confuse you, but this is done by convention. Interest rates are almost always posted as annualized rates.)
11-C, 12-C, 13-D, 14-A, 15-D, 16-F, 17-C, 18-D,
19-A, 20-A, 21-A, 22-D.
***Comments Updated****
For 19 you should try the following: change the phrase "inflation were expected to be" to "short term interest rates are". Then you can use the interest parity condition to solve for the "unknown"... in this case the forward exchange rate.
And be careful (19 and 20): Interest rates are quoted in ANNUALIZED rates, but in 19, the forward rate is 180 days (half a year). You will need to convert to "annual" or "half year" to get consistent rates. (I don't mean to confuse you, but this is done by convention. Interest rates are almost always posted as annualized rates.)
posted by Atomic Kid at 4:20 AM
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