国际金融Finance_Test_Bank_8.doc

Chapter 8—Relationships among Inflation, Interest Rates, and Exchange Rates 1. 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? a. If Country As inflation rate exceeds Country Bs inflation rate, Country As currency will weaken. b. If Country As interest rate exceeds Country Bs inflation rate, Country As currency will weaken. c. If Country As interest rate exceeds Country Bs inflation rate, Country As currency will strengthen. d. If Country Bs inflation rate exceeds Country As inflation rate, Country As currency will weaken. ANS: A PTS: 1 2. Given a home country and a foreign country, purchasing power parity (PPP) suggests that: a. a home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate. b. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate. c. a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate. d. a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate. ANS: D PTS: 1 3. The international Fisher effect (IFE) suggests that: a. a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate. b. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate. c. a home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate. d. a home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate. ANS: A PTS: 1 4. Because there are a variety of factors in addition to inflation that affect exchange rates, this will: a. reduce the probability that PPP shall hold. b. increase the probability that PPP shall hold. c. increase the probability t