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The following regression analysis was conducted for the inflation rate information and exchange rate of the British pound:   eBP = ao + a1[(1+IU.S.)/(1+IU.K.) – 1] + µ   Regression results indicate that ao = 0 and a1 = 1. Therefore:

The interest rate on pounds in the U.K. is 8%. The interest rate in the U.S. is 5%. Interest rate parity exists. U.S. investors will earn a lower nominal return domestically than British investors earn domestically.

As information technology improves, the lending role of financial institutions such as banks should ______________.

Assume the Fed desires to strengthen the dollar. If it buys dollars and simultaneously buys Treasury securities, this is an example of sterilized intervention.

Consider an MNC that is exposed to the Taiwan dollar (TWD) and the Egyptian pound (EGP). 25% of the MNC’s funds are Taiwan dollars and 75% are pounds. The standard deviation of exchange movements is 5% for Taiwan dollars and 7% for pounds. The correlation coefficient between movements in the value of the Taiwan dollar and the pound is .7. Based on this information, the standard deviation of this two-currency portfolio is approximately:

Given a home country and a foreign country, purchasing power parity suggests that:

Briefly discuss why it is a problem to have banks that are considered too-big-to-fail, along with how the concern is currently managed and may be managed through future regulation.

Products and services are generally becoming ________ standardized across countries, which tends to _________ the globalization of business.

Because there are sometimes no substitutes for traded goods, this will:

You just received a gift from a friend consisting of 1,000 Thai baht, which you would like to exchange for Australian dollars (A$). You observe that exchange rate quotes for the baht are currently $.023, while quotes for the Australian dollar are $.576. How many Australian dollars should you expect to receive for your baht?