国际金融双语期末A卷

Part I: Multiple choice(1*30=30score)( only one choice for each question)1.Which of the following transactions is recorded in the financial account?A)Ford motor company builds a new plant in ChinaB)A Chinese businessman imports Ford automobiles from the United States.C)A U.S. tourist spends money on a trip to China.D)The New York Yankees are paid $10 million by the Chinese to play anexhibition game in Beijing, China.2.In the balance of payments, the statistical discrepancy or error term is used to:A)Ensure that the sum of all debits matches the sum of all credits.B)Ensure that imports equal the value of exports.C)Obtain an accurate account of a balance-of-payments deficit.D)Obtain an accurate account of a balance-of-payments surplus.3. A deficit in the overall balance generally is an indication that:A)The country’s monetary authorities were selling foreign currency.B)The country’s monetary authorities were buying foreign currency.C)The country’s monetary authorities were buying domestic currency.D)The country’s monetary authorities were buying imported goods.4. Suppose that a Korean television set that costs 600 won in Korea costs $400 in the United States. These prices suggest that the exchange rate between the won and the dollar is:A)1.5 won per dollarB)0.75 won per dollarC)$1.50 per wonD)$3 per won5. To the US, U.S. capital inflows will create a __________ foreign currency and a __________ U.S. dollars.A)Demand for; supply ofB)Supply of; demand forC)Shortage of; demand forD)Supply of; shortage of6. U.S. imports of goods and services will create a __________ foreign currency anda __________ U.S. dollars.A) Demand for; supply ofB) Supply of; demand forC) Shortage of; demand forD) Supply of; shortage of7.If the spot price of the euro is $1.10 per euro and the 30-day forward rate is $1.00 per euro, and you believe that the spot rate in 30 days will be $1.05 per euro, you canmaximize speculative gains by:A)Buying euros in the spot market and selling the euros in 30 days at thefuture spot rate.B)Signing a forward foreign exchange contract to sell the euros in 30 days.C)Signing a forward foreign exchange contract to sell the dollars in 30 days.D)Buying dollars in the spot market and selling the dollars in 30 days at thefuture spot rate.8.Assume you are a Chinese exporter and expect to receive $250,000 at the end of 60 days. You can remove the risk of loss due to a devaluation of the dollar by:A)Selling dollars in the forward market for 60-day delivery.B)Buying dollars now and selling it at the end of 60 days.C)Selling the yuan equivalent in the forward market for 60-day delivery.D)Keeping the dollars in the United States after they are delivered to you.9. The interest rate in the U.K. is 4% for 90 days, the current spot rate is $2.00/£ and the forward rate is $1.96/£. If the covered interest rate differential is about 1%, then the interest rate in the U.S. for 90 days would have to be:A)7%B)4%C)3%D)2%10. If the covered interest differential is zero:A)International investments will be unprofitable.B)Parity has not been reached.C)The overall covered return on a foreign-currency investment equalsthe return on a comparable domestic-currency investment.D)A currency is at a forward premium by as much as its interest rateis higher than the interest rate in the other country.11. When uncovered interest parity holds:A)A currency is expected to appreciate by as much as its interest rateis lower than the interest rate in the other country.B) A currency is expected to appreciate by as much as its interest rateis higher than the interest rate in the other countryC) A currency is expected to depreciate by as much as its interest rateis lower than the interest rate in the other countryD)The forward premium equals the interest rate differential.12. International Fisher Effect refers to the condition when:A)Covered differential equals zero.B)Expected uncovered differential equals zero.C)Uncovered interest parity holds.D)Both (B) and (C).13. __________ purchasing power parity states that the difference between changes over time in product-price levels in two countries will be offset by the change in the exchange rate over this time.A)FullB)PartialC)RelativeD)Absolute14. The __________ approach to exchange rates emphasizes the importance of the supply and demand for money as a key to understanding the determinants of exchange rates.A)Purchasing-power-parityB)Asset marketC)MonetaryD)Balance of payments15. Based on PPP and the quantity theory of money, if Japan’s real income rises relative to real income in the US, there should be a(n):A)Appreciation of the dollar.B)Appreciation of the yen.C)Interest rate parity.D)Depreciation of the yen.16..The __________ effect can sometimes be destabilizing because it moves the exchange rate away from its long-run equilibrium value.A)BandwagonB)BubbleC)Exchange rateD)Arbitrage17. The law of __________ states that a product that is easily and freely traded in a perfectly competitive global market should have the same price everywhere.A) International tradeB) One priceC) Diminishing returnsD) Relative PPP18..According to the relative version of purchasing power parity, when the foreign country inflation rate increases, the home country’s:A)Currency tends to depreciate.B)Currency tends to appreciate.C)Inflation rate tends to decrease.D)Inflation rate tends to stay the same.19..Which of the following are in place when government imposes limits on or requires approvals for payments related to some (or all) international financial activities?A)Exchange controls.B)Capital controls.C)Official interventions.D)Adjustable pegs.20. Pressures in the foreign exchange market are such as to cause the British pound to appreciate with respect to the U.S. dollar. If Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar, which of the following interventions will stem the pressures for appreciation of the pound?A)Britain should sell pounds and buy dollars.B)Britain should do nothing as a fixed rate will not change.C)Britain should buy pounds and sell dollars.D)Britain should decrease their money supply to contract the economy.21. Faced with ever increasing outflows of gold in the late 1960’s, the United States:A)Used contractionary fiscal policies to rid the nation of deficits.B)Devalued the dollar in terms of gold.C) Suspended the convertibility of dollars into gold.D) Imposed foreign exchange controls.22. .If the marginal propensity to save is 0.3 and the marginal propensity to import is 0.1, and the government increases expenditures by $10 billion, ignoring foreign-income repercussions(回流效应), how much will GDP rise?A)$20 billion.B)$10 billion.C)$25 billion.D)$15 billion.23.The IS curve illustrates:A)All combinations of domestic output levels and interest rates for which thedomestic product market is in equilibrium.B)All combinations of domestic output levels and interest rates for which thedomestic money market is in equilibrium.C)All combinations of domestic output levels and interest rates that results ina zero balance for the country’s official settlements balance.D)All combinations of domestic output levels and interest rates for whichthere is full employment.24.The LM curve has a:A)Positive slope because a higher interest rate leads to a decrease in thedemand for money and thus a higher level of domestic production isneeded to cause people to continue to hold the same amount ofmoney.B)Negative slope because a higher interest rate leads to a decrease in thedemand for money and thus a higher level of domestic production isneeded to cause people to continue to hold the same amount ofmoney.C)Negative slope because a higher interest rate leads to a decrease inaggregate demand and thus a lower level of domestic production isneeded for equilibrium.D)Positive slope because a higher interest rate leads to a decrease inaggregate demand and thus a higher money supply is needed forequilibrium.25. Official intervention in the foreign exchange market to defend a fixed exchange rate when the value of domestic currency is under downward pressure:A）Causes international reserve holdings to rise.B）Has no impact on the domestic money supply.C）Causes the domestic money supply to rise.D）Causes the domestic money supply to fall.26. Floating exchange rates ensure:A) Full employment domestically.B) Domestic price stability.C) Equilibrium in the overall balance of payments.D) A surplus in the trade balance.27. There are limits to the ability of monetary authorities to use sterilized intervention in the case of a surplus because:A)The central bank may be unwilling to increase its holdings of foreigncurrency.B)Pressure from foreign countries to allow the domestic currency todepreciate will lead to large losses.C)The central bank is limited in its ability to obtain foreign currency.D)There are no limits on the use of sterilized intervention.28. Under a floating exchange rate regime, following an expansion in the money supply, monetary authorities will:A) Buy foreign currency in the foreign exchange market.B) Buy domestic currency in the foreign exchange market.C) Do nothing in the foreign exchange market.D) Sell domestic currency in the foreign exchange market.29.Given the IS-LM-FE framework and an overall payments balance of zero, if the country implements expansionary monetary policy, the LM curve will shift to the __________ which will lead to the country's currency __________. In response, the FE and IS curves will shift to the __________ and external balance will be reestablished.A) left; appreciating; rightB) left; depreciating; leftC) right; depreciating; rightD) right; appreciating; right30. Under a floating exchange rate regime with a low degree of capital mobility, expansionary fiscal policy will lead to:A) Higher interest rates.B) Lower interest rates.C) Capital outflows.D) A surplus in the official settlements balance.Part II, True or False (10*1.5=15 score)( T for true and F For false, you are not required to give reason for your choice) 1.If a currency is at a forward premium by as much as its interest rate is lower than the interest rate in the other country, covered interest parity holds.2. Contractionary fiscal policy with floating exchange rates and low capital mobility leads to currency depreciation.3. Over the long-run, a country with a relatively high inflation rate tends to have a depreciating currency.4.The quantity theory of money says that in any country the money supply is equated to the demand for money, which is directly proportional to the money value of the gross domestic product.5.With fixed exchange rates, external capital flow shocks have little impact on theinternal economy.6.The Bretton Woods conference created the International Monetary Fund (IMF).7.The official settlements balance is in deficit if the IS-LM intersection is to the right of the FE curve.8.(P f*e / P) is a useful indicator of a country’s international price competitiveness.9.The assignment rule says that, with fixed exchange rates, fiscal policy should be assigned to stabilizing the balance of payments and monetary policy should be assigned to stabilizing the domestic economy.10.The J curve shows a typical response of the current account balance to a drop in the exchange rate value of a country's currency.Part III: Questions(6*6=36 score)1.You are provided with the following information about a country's internationaltransactions during a given year:Service exports $ 346Service imports $354Merchandise exports $480Merchandise imports $348Income flow, net $153Unilateral transfers, net $142Increase in the country holding of foreign assets, net $352(excluding official reserves assets)Increase in foreign holding of foreign assets, net $252(excluding official reserves assets)Statistical discrepancy, net $154Calculate the official settlements balance and the current account balance. Is the country increasing or decreasing its net holdings of official reserve assets? Why? 2. The following rates exist:Current spot exchange rate: $1.8/£Annualized interest rate on 90-day dollar-denominated bonds: 8% (2% for 90 days) Annualized interest rate on 90-day pound-denominated bonds: 12% (3% for 90 days)Financial investor expect the spot exchange rate to be $1.77/£ in 90 days,A)With the uncovered interest differential to make judgment that if he bases his decisions solely on the difference in the expected rate of return, should a U.S.-based investor make an uncovered investment in pound-denominated bonds rather than investing in dollar-denominated bonds? Why?B) if there is substantial uncovered investment seeking higher expected returns, what pressure is placed on the current spot exchange rate?3.What is the exchange rate overshooting, why does it occur?4.Assume that a government has become committed to maintaining a fixedexchange rate that officially values foreign currencies less, and the domestic currency (here the dollar) more, than the free market equilibrium rate. The official rate is, say, $1.0 per pound sterling. This exchange controls result in considerable costs to a country whose government imposes them. Describe these costs and the role that bribery and parallel markets can play in economies with exchange controls.Figure: Welfare Losses from Exchange Controls$/£5. Use the standard IS-LM-FE framework and assume the country begins at a triple intersection under floating exchange rate. What effect will the following have on domestic interest rates, output levels, and the official settlements balance, assuming low capital mobility?(you are suggested explain with figure)a.The central bank increases the money supply.b.The government increases its spending.6.Explain the effects of expanding the money supply on the economy of a country with fixed exchange rates. (Assume the country begins at a triple intersection ,you are suggested explain with figure)Part III, Reading and analysis (9 score for paper1 and 10 score for paper 2)1: China to further reform RMB exchange rate regime (体制)The People's Bank of China（PBOC）, China's central bank, has decided to proceed further with the reform of the Renminbi （RMB）exchange rate regime to enhance the RMB exchange rate flexibility, a spokesperson of the central bank said on Jun 19, 2010, Saturday Beijing.The decision was made in view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the spokesperson said in a statement.In further proceeding with the reform, continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market, the spokesman said.The spokesperson said China's external trade is becoming more balanced. The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010."With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist," the spokesperson said.The PBOC will further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China, the spokesperson said.China has moved into a managed floating exchange rate regime based on market supply and demand with reference of a basket of currencies since July 1, 2005.The spokesperson said the reform of the RMB exchange rate regime has been making steady progress since 2005, producing the anticipated results and playing a positive role. ( On July 21, 2005, the People's Bank of China, announced that the RMB yuan, will be traded at a rate of 8.11 to the US and the yuan to US dollar pegging system is switched to a basket of foreign currencies.) With the current round of international financial crisis was at its worst, the exchange rate of a number of sovereign currencies to the US dollar depreciated by varying margins."The stability of the RMB exchange rate has played an important role in mitigating(缓解) the crisis' impact, contributing significantly to Asian and global recovery, and demonstrating China's efforts in promoting global rebalancing," the spokesperson said.The gradual recovery of the global economy and upturn of the Chinese economy has become more solid with enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility, said the spokesperson.Question1：Why the spokesperson said. "With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist,"Question2: Why the Chinese Central bank would like to proceed the reform of the Renminbi （RMB）exchange rate regime to enhance the RMB exchange rate flexibility. Can you explain the benefit by making the RMB more flexible?2: Hot money flow and its explanationThe generally accepted view is that the inflow of short-term speculative money (so-called hot-money) began in 2007 in China targeting capital gains derived from rising stock and property prices and the anticipated appreciation of the RMB. “hot money” is defined as the flow of funds counted as capital and financial account other than for direct investment and errors and omissions. In other words, “hot money” is defined as “changes in reserve assets” minus “changes in current account” minus “direct investment flows”. This is the simplest way to express the movement of short-term funds, and the most conservative, as the estimates tend to be smaller.When adjustments are made for the some policy measures, the BoP statistics indicate that “hot money” inflows into China accelerated from 22.5 billion USD in the first half of 2007, to 70.2 billion USD in the second half of 2007, and up to 139.1 billion USD in the first half of 2008. In contrast, a huge 184.8 billion USD of “hot money” flowed out in the second half of 2008 (2008, 2H)(Figure 1).Figure 1: Hot money in China after adjustmentSome people says that the huge inflow of hot money is the reason for the increasing price of stock price and property price. In order to check this point, here we give two figures about the Shanghai Stock index and Property (资产) Price index of different regions including ShangHai, Shengzhen, Beijing.Figure 2: Shanghai Stock IndexCurrent accountDirect investmentHot moneyForeign reserveFigure 3: Property Price index.We find that Stock prices peaked in October 2008, and thereafter began a downward trend (Figure 2). Growth in property prices began to fall in the first half of 2008 (c) (Figure 3) although the hot money inflow go to its peak at the same time. Figure 4: RMB exchange rate and interest rate parityFrom the above figure 4, we find that the RMB forward exchange rate shifted after the rapid appreciation of the RMB spot exchange rate, and deviated from interest rate parity from late-2007 until the autumn of 2008. The distance from interest rate parity widened most in the first half of 2008. This is because spot exchange rates are under the control of the authorities while forward exchange rates are not, and their appreciation reflected market participants’ expectation of spot rate appreciation in the following period. As a consequence, the RMB forward exchange rate moved toward appreciation, and the difference between the RMB forward rate and spot rate began to deviate from interest rate parity in May 2007, peaking in March 2008.Figure 5: Returns from arbitrage transactions using RMB forward exchange rateInterest rate differencebetween RMB and USDRMB Forwardpremium (远升水)Change of RMB spot rate（US$/￥）Question 1: From fighre1,2,3, do you agree with the such idea that the huge hot money inflow is the main force that pushes the Chinese stock price and property price increase and raises the bubbles. Why?Question 2: With the figure 1, 4, 5 would you please explain the relationship between RMB appreciation and hot money inflow by the asset market approach, say, the covered interest differential equation and covered interest parity.浙江财经学院2009～2010学年第一学期《国际金融(双语)》课程期末考试试卷（ A 卷）答案PART I: Multiple choice（10*1=10）1-5 AAAAB 6-10 ACACC 11-15 ADCCB 16-20 ABBBA21-25 CCAAD 26-30CACCAPART II TRUTH OR FALSE(10*1.5=15)1T 2 F 3 T 4T 5F. 6T 7T 8T 9 F 10 TPART III: Questions(6*6=36)Question 1:POSSIBLE RESPONSE:Current account balance: $346 - 354 + 480 - 348 + 153 - 142 = $135Official settlements balance: $346 - 354 + 480 - 348 +153 -142 + 252 – 352 + 154 = $189Change in official reserve assets (net) = -official settlements balance = -$189.The country is increasing its net holdings of official reserve assets.Question 2:POSSIBLE RESPONSE:a)From the point of view of the U.S.-based investor, the expected uncovered interest differential is [(1+0.03)*1.77/1.8]-(1+0.02)=-0.0072. Because the differential is negative, the U.S –based investor should stay at home, investing in dollar-denominated bonds, if he bases his decision on the difference in expected reurns.b) If there is substantial uncovered investment flowing from Britain to the United States, this increases the supply of pounds in the spot exchange market. There is downward pressure on the spot exchange rate to drop below $1.8/pound. The pound teds to depreciate.Question 3:POSSIBLE RESPONSE:Overshooting occurs because in this sticky price version of the monetary approach, prices are assumed to be fixed in the short run and completely flexible in the long run.A considerable amount of time must pass for the increase in money supply to lead to an increase in domestic prices. Thus, purchasing power parity is more realistically assumed to hold in the long run but not in the short run. Because prices are sticky at first, the increase in money supply drives down domestic interest rates. This shift favors foreign currency assets which results in immediate depreciation of the domestic currency. As prices adjust, the domestic currency reverts back to its new long run equilibrium.Question4、Assume that a government has become committed to maintaining a fixed exchange rate that officially values foreign currencies less, and the domestic currency (here the dollar) more, than the free market equilibrium rate. The official rate is, say, $1.0 per pound sterling. This exchange controls result in considerable costs to a country whose government imposes them. Describe these costs and the role that bribery and parallel markets can play in economies with exchange controls. Figure: Welfare Losses from Exchange ControlsPOSSIBLE RESPONSE:The exchange controls require exporters to turn over all their revenues from foreign buyers to the government. The government, in turn, gives them $1.0 in domestic bank deposits for each pound sterling they have earned. In Figure 20.2, the exchange control limits the foreign currency available to 30 billion pounds, which is the amount earned by the country’s exporters at the exchang e rate of $1.0 per pound. Even if those who most value the limited foreign currency get it, the country suffers a loss of well being equal to the triangular area depicted by CEA.Actual exchange control regimes are likely to have other effects and costs. One such example is the efforts evade exchange controls. People are frustrated when they are not allowed to buy foreign exchange, even though they are willing to pay more than the recipients of foreign exchange will get from the government when these holders sell their foreign currency. The frustrated demanders will look for other ways to obtain foreign exchange. One way is to bribe the government functionaries in charge of determining the official approvals. Another is to offer more to recipients of foreign exchange than the government is offering. In this way a second foreign exchange market, a parallel market or black market, develops as a way for private demanders and sellers of foreign exchange to evade exchange controls. Parallel markets exist in most countries that have exchange controls.5. Use the standard IS-LM-FE framework and assume the country begins at a triple intersection under floating exchange rate. What effect will the following have on domestic interest rates, output levels, and the official settlements balance, assuming low capital mobility?(you are suggested explain with figure)a.The central bank increases the money supply.b.The government increases its spending.POSSIBLE RESPONSE:a.The LM curve shifts to the right, and the country moves to a new short-runequilibrium at the intersection of the IS curve and the new LM curve.The domestic interest rate decreases, real GDP increases, and the officialsettlements balance goes into deficit. With the increase in the moneysupply, it is temporarily greater than money demand. To bring about anequilibrium in the money market, interest rates must fall. The fall ininterest rates increases interest-sensitive spending, so the GDP outputlevel increases. There is now a payment deficit because the newintersection of the IS and LM curves takes place to the right of the FEcurve.b.The IS curve shifts to the right, and the country moves to a new short-runequilibrium at the intersection of the LM curve and the new IS curve.Real GDP increases, the domestic interest rate increases, and the officialsettlements balance goes into deficit. This new intersection occurs to theright of the relatively steep FE curve, which corresponds to a paymentsdeficit.The figure is neglected.6. Explain the effects of expanding the money supply on the economy of a country with fixed exchange rates. (Assume the country begins at a triple intersection , you are suggested explain with figure)POSSIBLE RESPONSE:Beginning from an external balance, an expansion in the money supply increases bank liquidity. In the short run, as banks compete with each other to lend money, interest rates are bid down. The fall in interest rates causes some holders of financial assets denominated in the domestic currency to seek higher returns abroad. The international capital outflow causes the financial account to deteriorate. the currency of this country will under the pressure of depreciate, thus the central bank should intervene the foreign market by buying the domestic currency. Thus the concretionary monetary policy will be applied.Finally we will find it that the expansionary monetary policy can not make effect on the economy..The figure is neglected.Part III, Reading and analysisReading 1 ,9 scoreQuestion1：Why the spokesperson said. "With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist,"POSSIBLE RESPONSE:The policy makers usually will pursuer both the external balance and internal balance, the external balance means that the Balance of Payments or the current account balance plus the financial account balance is close to zero. In this situation, it means that the export value (including goods, services and financial products) is equal to the import value in China. Thus in the foreign exchange market the supply of foreign currency is similar to the demand of the foreign currency and the foreign exchange market is close to the equilibrium. The values of Chinese currency RMB will not experience the appreciation pressure more. So the spokesperson said the basis for large-scale appreciation of the RMB exchange rate does not exist. This basis means the BOP account moving closer to equilibrium.Question2: Why the Chinese Central bank would like to proceed the reform of the Renminbi （RMB）exchange rate regime to enhance the RMB exchange rate flexibility. Can。