Question

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, as an investor which bond would you prefer to have been holding? A. A bond with one year to maturity. B. A bond with five years to maturity. C. A bond with ten years to maturity. D. A bond with fifteen years to maturity. E. A bond with twenty years to maturity.

In relation to foreign exchange rates: A. Under PPP, a country with a higher inflation rate relative to another country can expect its currency to appreciate. B. Given NZD/USD six months forward points are 0.0032-0.0037, this means the base currency is at a forward premium. C. If a country’s rate of growth increases its demand for imports, then its currency should increase as well. D. Companies with multiple FX cash flows should pay the individual transactions immediately, rather than collate and net them. E. An external risk management strategy is for an exporting firm to invoice its foreign transactions in the home currency.

Answer 1

If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, as an investor which bond would you prefer to have been holding? A. A bond with one year to maturity. B. A bond with five years to maturity. C. A bond with ten years to maturity. D. A bond with fifteen years to maturity. E. A bond with twenty years to maturity.

Ans A - With high volatility short term instruments should be chosen for investments.

In relation to foreign exchange rates: A. Under PPP, a country with a higher inflation rate relative to another country can expect its currency to appreciate. B. Given NZD/USD six months forward points are 0.0032-0.0037, this means the base currency is at a forward premium. C. If a country’s rate of growth increases its demand for imports, then its currency should increase as well. D. Companies with multiple FX cash flows should pay the individual transactions immediately, rather than collate and net them. E. An external risk management strategy is for an exporting firm to invoice its foreign transactions in the home currency

Ans E An external risk management strategy is for an exporting firm to invoice its foreign transactions in the home currency to minimize the risk of exchange rates.