EC 500 - Final Exam 2025 With 100%
Correct Answers
Interest Parity Condition Equation - CORRECT ANSWER✔✔ln(F) - ln(S) = i(countryA) - i(countryB)
Interest Parity Condition Definition - CORRECT ANSWER✔✔Percentage difference between the
forward and spot exchange rates must equal the difference between the interest rates in the
two countries.
If the one month interest rate in country A is 3% per month and that in country B is 4% per
month, the one-month forward rate must be ____________ than the spot rate for the Interest
Parity Condition to hold - CORRECT ANSWER✔✔1% lower
If the one month interest rate in country A is 3% per month and that in country B is 4% per
month, which currency has a lower value on the forward market? - CORRECT ANSWER✔✔The
currency of country B (higher interest rate) must have lower value on the forward market.
If i(countryA) < i(countryB) no one will buy bonds in countryA unless ___________ - CORRECT
ANSWER✔✔The value of that currency on the forward market is 1% higher than its spot rate.
If the interest parity condition does not hold, investors can make ______________ profits -
CORRECT ANSWER✔✔riskless
Speculators pursuit of riskless profits will move the _____________ and ______________ until
the ____________ holds. This is called ______________ - CORRECT ANSWER✔✔Exchange
rates, interest rates, interest parity condition; covered interest arbitrage
, The flow of investment toward the country with higher interest rate will tend to ________ the
rate of interest there, ___________ the spot value of the currency and ________ the forward
market value of the currency. - CORRECT ANSWER✔✔reduce, increase, reduce
If the interest parity condition holds, the country with the _________ interest rate will have a
relatively _____________ value on the forward market - CORRECT ANSWER✔✔higher; lower
The interest parity condition is also called the - CORRECT ANSWER✔✔Covered interest parity
condition
Price Discrimination - CORRECT ANSWER✔✔Whenever a firm charges different prices to
different customers based on a difference in their willingness to pay
True or False: A firm charging different prices to different customers based on a difference in the
cost of delivering or providing the good or service is not price discrimination. - CORRECT
ANSWER✔✔True
Price discrimination occurs when different groups of buyers have different ___________ -
CORRECT ANSWER✔✔Elasticities of demand
In price discrimination: Those with relatively more elastic demand are charged a __________
price, while those with the relatively inelastic demand are charged a _______ price. - CORRECT
ANSWER✔✔lower, higher
The group with the relatively more elastic demand is the group more likely to _______________
its purchases in response to a lower price - CORRECT ANSWER✔✔increase
Marginal Revenue Equation - CORRECT ANSWER✔✔MR = P(1+ (1/(demand elasticity)))
Correct Answers
Interest Parity Condition Equation - CORRECT ANSWER✔✔ln(F) - ln(S) = i(countryA) - i(countryB)
Interest Parity Condition Definition - CORRECT ANSWER✔✔Percentage difference between the
forward and spot exchange rates must equal the difference between the interest rates in the
two countries.
If the one month interest rate in country A is 3% per month and that in country B is 4% per
month, the one-month forward rate must be ____________ than the spot rate for the Interest
Parity Condition to hold - CORRECT ANSWER✔✔1% lower
If the one month interest rate in country A is 3% per month and that in country B is 4% per
month, which currency has a lower value on the forward market? - CORRECT ANSWER✔✔The
currency of country B (higher interest rate) must have lower value on the forward market.
If i(countryA) < i(countryB) no one will buy bonds in countryA unless ___________ - CORRECT
ANSWER✔✔The value of that currency on the forward market is 1% higher than its spot rate.
If the interest parity condition does not hold, investors can make ______________ profits -
CORRECT ANSWER✔✔riskless
Speculators pursuit of riskless profits will move the _____________ and ______________ until
the ____________ holds. This is called ______________ - CORRECT ANSWER✔✔Exchange
rates, interest rates, interest parity condition; covered interest arbitrage
, The flow of investment toward the country with higher interest rate will tend to ________ the
rate of interest there, ___________ the spot value of the currency and ________ the forward
market value of the currency. - CORRECT ANSWER✔✔reduce, increase, reduce
If the interest parity condition holds, the country with the _________ interest rate will have a
relatively _____________ value on the forward market - CORRECT ANSWER✔✔higher; lower
The interest parity condition is also called the - CORRECT ANSWER✔✔Covered interest parity
condition
Price Discrimination - CORRECT ANSWER✔✔Whenever a firm charges different prices to
different customers based on a difference in their willingness to pay
True or False: A firm charging different prices to different customers based on a difference in the
cost of delivering or providing the good or service is not price discrimination. - CORRECT
ANSWER✔✔True
Price discrimination occurs when different groups of buyers have different ___________ -
CORRECT ANSWER✔✔Elasticities of demand
In price discrimination: Those with relatively more elastic demand are charged a __________
price, while those with the relatively inelastic demand are charged a _______ price. - CORRECT
ANSWER✔✔lower, higher
The group with the relatively more elastic demand is the group more likely to _______________
its purchases in response to a lower price - CORRECT ANSWER✔✔increase
Marginal Revenue Equation - CORRECT ANSWER✔✔MR = P(1+ (1/(demand elasticity)))
