1) A 150% local currency return in Brazil is higher than a 15% dollar return in

Question

1) A 150% local currency return in Brazil is higher than a 15% dollar return in the U.S.
      
a) because arbitrage opportunities exist
      
b) when the inflation controls are suspended in Brazil
      
C) it depends on whether these are nominal or real returns
      
D) regardless of nominal or real returns

2) If annualized interest rates in the U.S. and Sweden are 9% and 13%, respectively, and the spot value of the Swedish krona is $.1090, then at what 180 day forward rate will interest rate parity hold?
      
a) $.1070
      
B) $.1150
      
C) $.1088
      
d) $.1130

3) If the U.S. dollar appreciates against the euro by 43%, the euro will depreciate against the U.S. dollar
      
a) 25%
      
b) 43%
      
c) 30%
      
d) 10%

4) If the Euro depreciates by 14% against the U.S. dollar, this is equivalent to an appreciation of the dollar against the euro by
      
a) 16.98%
      
b) 19.05%
      
C)20.48%
      
d) 14%

5) If the expected inflation rate is 3% and the real required return is 4%, then the Fisher effect says that the nominal interest rate should be exactly
      
a) 1%
      
b) 7%
      
C) 7.12%
      
d) 4%

Explanation / Answer

1.

The correct option is option A.

Due to the arbitratrage opertunity the return in brazin and Us differs.

2.

Annualized interest rate of US = 0.09

Annualized interest rate of Sweden = 0.13

Forward rate of Swedish krona = 1090*(1.13/1.09) = $1,130.

Therefore, the correct answer is option D.

3.

The euro depreciates by 1/1.43 = 0.70.

Therefore, 30% of Euro depreciates if 43% of US $ increases.

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