What’ll it be today?
might be busy with these mkts but will try to play along. have been doing derivs but you name it, i’ll play. econ? i haven’t looked at that in ages. i think most everyone is done reading it, can’t hurt to review a few fx equations and the BOP that i still haven’t learned.
I can’t participate, but I’ll throw it up as a public service.
Easy one: If growth rate is 10% per year, GDP will double in: a) 5 yrs b) 7 yrs c) 10 yrs
Gotta be B!
haha rule of 70 right? Econ would be a nice lunch crunch
haha yeah it is B I am going to stab myself test day if I get the rule of 70 wrong.
just finished up deriv’s myself. i’m up for anything but PM.
philip.platt Wrote: ------------------------------------------------------- > haha yeah it is B > > I am going to stab myself test day if I get the > rule of 70 wrong. Anyway they are not going to ask this on exam… Is this a second grade school exam ?
bannisja Wrote: ------------------------------------------------------- > might be busy with these mkts but will try to play > along. Markets are indeed getting crazy. I put Limit day order on JPM and GS. Hope I can do them away before the market shuts down and book that little profit.
The Exchange Rate and Balance of Payments -------------------------------------------------------------------------------- Question 1 - 89091 During a recent staff meeting at LeBoeff Financial Capital Inc., Joe Hardy asked the firm’s in-house economist, Robin Heathers, to provide a discussion of the Federal Reserve’s intervention in the foreign exchange markets. At the meeting, Heathers made the following statements: Statement 1: If the equilibrium dollar-rial exchange rate fluctuates between 150 rial/USD and 180 rial/USD and on average is 165 rial/USD, then the U.S. Fed can reduce exchange rate volatility by buying rials when the rate moves above 175 and selling rials for dollars when the rate moves below 155. Statement 2: If the average equilibrium exchange rate moves from 165 rial/USD to 175 rial/USD, the U.S. Fed can intervene in the currency markets to return the equilibrium rate to 165. With respect to these statements: A) both are incorrect. B) both are correct. C) only one is correct. -------------------------------------------------------------------------------- Question 2 - 89160 At an International Trade forum in Shanghai, China, a special panel of leaders advocating free trade was discussing the balance of payments in their respective countries. During the forum the following statements were made: China’s Delegate: 2006 was a wonderful year for China economically speaking. However, the U.S. has experienced greater difficulties because of its widening trade deficit. The U.S. is running a trade deficit because it is spending more on public services than it is raising in tax revenues. Uruguay’s Delegate: Since 1997 the U.S. has run a current account deficit and a smaller surplus in its capital account. This has led to a small surplus in the country’s official reserve account in order to balance the balance-of-payments account. With respect to these statements: A) only one is correct. B) both are correct. C) both are incorrect. -------------------------------------------------------------------------------- Question 3 - 89094 Terrance Burnhart, a junior analyst at Wertheim Investments Inc., was discussing the concepts of purchasing power parity (PPP) and interest rate parity (IRP) with his colleague, Francis Ferngood. During the conversation Burnhart made the following statements: Statement 1: PPP is based on a number of unrealistic assumptions that limits its real-world usefulness. These assumptions are: that all goods and services can be transported among countries at no cost; all countries use the same basket of goods and services to measure their price levels; and all countries measure their rates of inflation the same way. Statement 2: IRP rests on the idea of equal real interest rates across international borders. Real interest rate differentials would result in capital flows to the higher real interest rate country, equalizing the rates over time. Another way to say this is that differences in interest rates are equal to differences in expected changes in exchange rates. With respect to these statements: A) both are correct. B) only statement 1 is correct. C) only statement 2 is correct. -------------------------------------------------------------------------------- Question 4 - 89157 Phil Howell, a foreign exchange trader, makes the following two statements about foreign exchange rates: Statement 1: A decrease in the expected future exchange value of a currency will increase supply and decrease demand for that currency. Statement 2: Interest rate parity (IRP) is the idea that exchange rates will adjust to reflect the difference in inflation rates between different countries. With respect to these statements: A) both are correct. B) both are incorrect. C) only one is correct. -------------------------------------------------------------------------------- Question 5 - 104159 Pauline Zeiss, CFA, is preparing a report on the investment climate in the country of Andalmosa. She has assembled the following data: The Andalmosan central bank’s actions have an indirect effect on exchange rates. Andalmosan currency is likely to depreciate. Andalmosan interest rates are low. Given the information presented above, what conclusions can Zeiss draw about the Andalmosan government’s policies regarding currency supplies and exchange rates? Currency supply Exchange rate policy A) Too low Crawling peg B) Too high Flexible C) Too high Crawling peg
honestly, i should do this open book b/c i just gave a once-over and couldn’t with confidence answer a single one of those. ruh-roh. someone hasn’t looked at econ since maybe november.
Crap!!! I think I am 0/5 here already. 1. C {S1:FALSE 165 to 175 USD is UP, so need to sell USD and buy Rials to get it back to 165: S2: TRUE (can intervene to a certain extend)} 2. B {S1: TRUE Spending - taxes collected will cause deficit when Spen UP and Taxes DONW} S2: TRUE (BOP = cuA + caA + ORA) 3. A {S1:PPP is crap; Relative PPP more realistic and atleast holds tru in the long run} 4. C {S1: TRUE;} {S2: FALSE; based on the idea of interest rate differentials not inflation differentials (we ued PPP here)} 5. B {High and flexible}
my guesses without looking were going to be B, A, B, C, B. i’m thinking that i need to do a little drive through econ later tonight.
Me too, banni! I’ll take a shot, though: 1. c 2. a 3. c 4. a 5. b
swaptiongamma Wrote: ------------------------------------------------------- > Crap!!! I think I am 0/5 here already. > > 1. C {S1:FALSE 165 to 175 USD is UP, so need to > sell USD and buy Rials to get it back to 165: S2: > TRUE (can intervene to a certain extend)} > 2. B {S1: TRUE Spending - taxes collected will > cause deficit when Spen UP and Taxes DONW} S2: > TRUE (BOP = cuA + caA + ORA) > 3. A {S1:PPP is crap; Relative PPP more realistic > and atleast holds tru in the long run} > 4. C {S1: TRUE;} {S2: FALSE; based on the idea of > interest rate differentials not inflation > differentials (we ued PPP here)} > 5. B {High and flexible} Nice Work! Questions: 5 Points Possible: 5 Points Correct: 4 Score: 80% #2 Your answer: B was incorrect. The correct answer was A) only one is correct. If the U.S. is spending more on public services than it is collecting in tax revenues, it is experiencing a budget deficit, not a trade deficit. If the U.S. is experiencing a current account deficit that is larger than its capital account surplus there will be a surplus in the country’s official reserve account so that its balance-of-payments will net to zero.
Mike Harris in a research paper on free trade between high-wage countries and low-wage countries concluded free trade between low-wage countries such as China, India, and Pakistan and high-wage countries such as the U.S., Japan, and Germany would depress wages in high-wage countries. His conclusion was based on the following: Point 1: U.S., Japanese, and German workers are unable to compete with cheap foreign labor from countries such as China, India, and Pakistan. Point 2: U.S., Japanese, and German workers are less productive than workers in China, Pakistan, and India. Point 3: Free-trade between high-wage countries and low-wage countries will reduce the consumption possibilities of people in high-wage countries. Are Points 1, 2, and 3, as raised by Harris correct? Point 1 Point 2 Point 3 A) Incorrect Correct Correct B) Correct Correct Incorrect C) Incorrect Incorrect Incorrect -------------------------------------------------------------------------------- Question 2 - 89133 The following chart indicates the production possibilities of food and drink per day in Country A and Country B. Units of Output Per Day Country A Country B Food 4 8 Drink 6 7 Which of the following statements about the chart is most accurate? A) Mutual gains could be realized from trade if A specialized in drink production and B specialized in the food production. B) Since B workers can produce more of food and drink than A workers, no gains from trade are possible. C) Mutual gains could be realized from trade if A specialized in food production and B specialized in drink production. -------------------------------------------------------------------------------- Question 3 - 89186 Prior to the beginning of summer, the government of Japan places a 150 percent tariff on imported chain saws. Assume for this example that this tariff has a significant impact on the supply of chain saws. The government’s action: A) benefits the Japanese government and domestic producers. B) will protect the jobs and high wages of Japanese chain saw industry workers. C) is more harmful than if the government had limited the amount of chain saws imported. -------------------------------------------------------------------------------- Question 4 - 89112 The table below outlines the possible tradeoffs of producing beer and cheese for Germany and Holland. Germany Holland Cheese Beer Cheese Beer 0 10 0 6 5 0 4 0 Which of the following statements is most accurate? A) Both countries would gain if Germany traded beer for Holland’s cheese. B) Both countries would gain if Germany traded cheese for Holland’s beer. C) Germany would not gain from trade, because it has an absolute advantage in the production of both goods. -------------------------------------------------------------------------------- Question 5 - 89128 Trade agreements like the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) that lower trade barriers are least likely to: A) cause a recession in the United States. B) increase competition worldwide. C) lead to economic growth. -------------------------------------------------------------------------------- Question 6 - 89113 “Import quotas will create jobs, increasing the employment level of a nation.” Economic analysis indicates that this statement is incorrect in: A) the short run only. B) both the long and short run. C) the long run only. -------------------------------------------------------------------------------- Question 7 - 89110 The table below outlines the possible tradeoffs of producing units of cloth and corn for both Country A and Country B. Country A Country B Units of Cloth Units of Corn Units of Cloth Units of Corn 0 4 0 8 6 3 8 6 14 0 16 0 Which scenario best describes the effects of trade between the countries? A) Both countries would gain if Country A traded corn for Country B’s cloth. B) Country B would not gain from trade, because it has an absolute advantage in the production of both goods. C) Both countries would gain if Country A traded cloth for Country B’s corn. -------------------------------------------------------------------------------- Question 8 - 89185 Suppose the world price of Mercury tennis shoes is $60, but they sell in the U.S. for $75 due to a $15 import tariff. Who will most likely be negatively affected by the tariff? A) U.S. Consumers. B) Producers. C) Foreign Consumers. -------------------------------------------------------------------------------- Question 9 - 89130 David Forsythe and Linda Novak are discussing the advantages and disadvantages of import restrictions. They state the following: Forsythe: One of the groups that benefits from import restrictions is often the government that imposes them. Novak: Import restrictions impose costs on specific groups, such as the country’s import industries, but these costs are more than offset by the benefits to other groups and to the economy as a whole. With respect to these statements: A) both are correct. B) both are incorrect. C) only one is correct. -------------------------------------------------------------------------------- Question 10 - 89123 Prior to the beginning of the baseball season, the United States government places a tariff on imported bubble gum. Assume for this example that this tariff has a significant impact on the supply of bubble gum. Which of the following statements about the impact of this tariff is least valid? The tariff: A) will protect the jobs of domestic bubble gum industry workers in the long run. B) will prohibit foreign firms from dumping bubble gum on the U.S. market at below cost. C) is not necessary to maintain the high wages of the U.S. bubble gum industry workers. -------------------------------------------------------------------------------- Question 11 - 89111 Calvin Gooden, an assistant economist with the World Bank, is a member of a Level I CFA study group. Most of the members of his group do not have an economics background and are frustrated with the material on comparative advantage. Gooden devises the following question to help them study. The table below gives the prices of four goods (jeans, wine, cheese, and LCD screens) in France and the United Kingdom (U.K.). Gooden tells the group to assume that the current exchange rate is 1.5 EUR/ 1.0 GBP. Good France (in EUR) United Kingdom (in GBP) Jeans 42 26 Wine 18 14 Cheese 5 3 LCD Screens 85 50 Acting to minimize costs, French consumers will purchase: A) French wine and British jeans, cheese, and LCD screens. B) French wine and cheese and British jeans and LCD screens. C) British wine and French jeans, cheese, and LCD screens.
Whew, some of those were tough to read! My take: 1. C 2. A 3. A 4. A 5. A 6. C 7. C 8. A 9. C 10. A 11. A (No B’s, that can’t be a good sign…)
Aimee Wrote: ------------------------------------------------------- > Whew, some of those were tough to read! My take: > 1. C > 2. A > 3. A > 4. A > 5. A > 6. C > 7. C > 8. A > 9. C > 10. A > 11. A > > (No B’s, that can’t be a good sign…) Questions: 11 Points Possible: 11 Points Correct: 11 Score: 100% Excellent!
Wow! Ok, I quit now 
No one else wanted to try??