Quiz Fiche finance internationale

Forward premium puzzle

They should be in opposite directions

Expectational error

<p>They have the same return</p> Signup and view all the answers

<p>CIP states that the forward premium of a foreign currency should be equal to the interest rate differential between a domestic asset and a substitutable foreign asset.</p> Signup and view all the answers

<p>Covered interest arbitrage is the transfer of liquid funds from one monetary center to another to take advantage of higher rates of return or interest, while covering the transaction with a forward currency hedge.</p> Signup and view all the answers

<p>4%</p> Signup and view all the answers

<p>The assumption that the forward market is used to cover against exchange risk</p> Signup and view all the answers

<p>The assumption that transactions are conducted only in the current market</p> Signup and view all the answers

<p>To ensure the effectiveness of interest rate policy to stabilize an exchange rate</p> Signup and view all the answers

<p>UIP is always tested in a form of equality between realized change in spot exchange rate and interest rate differential</p> Signup and view all the answers

<p>The failure of uncovered interest parity to hold</p> Signup and view all the answers

<p>The forward discount should be an unbiased predictor of the ex post change in the spot rate</p> Signup and view all the answers

<p>There is no systematic difference between the forward rate and the expected future spot rate</p> Signup and view all the answers

<p>The regression coefficient is often not statistically significantly far from unity</p> Signup and view all the answers

<p>CIP states that the forward premium of a foreign currency should be equal to the interest rate differential between a domestic asset and a substitutable foreign asset.</p> Signup and view all the answers

<p>Covered interest arbitrage is the transfer of liquid funds from one monetary center to another to take advantage of higher rates of return or interest, while covering the transaction with a forward currency hedge.</p> Signup and view all the answers

<p>4%</p> Signup and view all the answers

<p>CIP is based on the assumption that the forward market is used to cover against exchange risk</p> Signup and view all the answers

<p>CIP assumes transactions are conducted in both current and forward markets, while UIP assumes transactions are conducted only in the current market</p> Signup and view all the answers

<p>All of the above are reasons to study the potential validity/failure of UIP</p> Signup and view all the answers

<p>Transaction costs, possible capital controls, and difference in tax rates on interest income and foreign exchange losses/gains in different countries</p> Signup and view all the answers