Reference no: EM131686

Problem 1. If purchasing power parity applied to Big Macs, and a Big Mac cost $2.50 in the United States while the British pound cost $1.50 and €0.90 euros could be obtained for $1.00, (a) how much could the Big Mac cost in Britain and (b) Germany respectively?

Problem 2. Evaluate the gross profit that an underwriter would make if it sold $10 million worth of bonds at par (face value) and paid the firm that sold the bonds 99.25% of par.

Problem 3. An expansion in the U.S. money supply

a.  will increase domestic interest rates

b.  will cause the exchange value of the dollar to increase.

c.  will cause U.S. exports to increase.

d.  will cause U.S. imports to increase.

Problem 4. Which Fed action does not directly increase total reserves in the banking system?

a.  Lowering the Discount Rate

b.  Lowering reserve requirements

c.  Buying U.S. Government securities on the open market

d.  None of the above

Problem 5. If the cost of yen per dollar changes from 100 to 110 yen per dollar,

a.  The yen has appreciated against the dollar.

b.  The dollar has depreciated against the yen.

c.  The dollar has appreciated against the yen.

d.  The cost of a yen has increased in terms of dollars.