The following statements are either true, or false. Indicate whether each statement is true or false, and concisely explain why. (A short statement is all this is necessary.) Illegible responses will earn no credit!!
a) A U.S. importer needs to pay a supplier £4,000,000 thirty days from today. Firm management is worried about the actual number of $US that will need to be paid. If the firm would like to protect against an adverse shift in exchange rates while simultaneously maintaining the ability to obtain windfall gains from a beneficial shift in exchanges rates, the firm should buy pounds forward, using a forward contract.
b) The International Fisher Effect is valid because the currencies of countries with high interest rates always depreciate relative to currencies of countries with low interest rates.
c) A currency put option gives the buyer the right, but not the obligation, to purchase foreign currency at a pre-specified price, at a pre-specified date (the expiration date).
d) Economic growth and inflation both tend to be higher in countries where the central bank is highly independent.
e) “American Terms” refers to the interest rate offered by banks on dollar-based loans in a foreign country.