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Multiple Choice Questions

1) If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will:
-Appreciate against the U.S. dollar.
-Depreciate against the U.S. dollar.
-Remain unchanged against the U.S. dollar.
-Appreciate against other major currencies.
-Appreciate against the dollar and other major currencies.

2) Which of the following statements is CORRECT?
-While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.
-A liquid security is a security whose value is derived from the price of some other "underlying" asset.
-Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks.
-Money markets are markets for long-term debt and common stocks.
-The NYSE operates as an auction market, whereas the Nasdaq is a dealer market.

Solution Preview

1) If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will:
-Appreciate against the U.S. dollar.
-Depreciate against the U.S. dollar.
-Remain unchanged against the U.S. dollar.
-Appreciate against other major currencies.
-Appreciate against the dollar and other major currencies.

Answer: -Appreciate against the U.S. dollar.

According to purchasing power parity, the country with a higher inflation rate as compared to another country will see its currency depreciate with respect to the currency of the other country. Here US has a ...

Solution Summary

Multiple Choice Questions in finance.

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