MBA 620 | Questions with 100% Verified Answers | Latest Update
2026/2027
Question: Assume the following bid and ask rates of the pound for two
banks as shown below:
Bank C
Bid - $1.61
Ask - $1.63
Bank D
Bid - $1.58
Ask - $1.60
As locational arbitrage occurs:
Answer:
the bid rate for pounds at Bank C will decrease; the ask rate for pounds at Bank D will
increase.
Question: Assume the British pound is worth $1.60, and the Canadian
dollar is worth $.80. What is the value of the Canadian dollar in
pounds?
Answer:
.50
Question: When using ____, funds are typically tied up for a significant
period of time.
Answer:
covered interest arbitrage
Question: Due to ____, market forces should realign the relationship
between the interest rate differential of two currencies and the
forward premium (or discount) on the forward exchange rate
between the two currencies.
Answer:
covered interest arbitrage
Question: Due to ____, market forces should realign the spot rate of a
currency among banks.
Answer:
locational arbitrage
, Question: Bank A quotes a bid rate of $.300 and an ask rate of $.305 for
the Malaysian ringgit (MYR). Bank B quotes a bid rate of $.306
and an ask rate of $.310 for the ringgit. What will be the profit
for an investor who has $500,000 available to conduct
locational arbitrage?
Answer:
$1,639
Question: Spot rate today of Swiss franc = $.60
1-year forward rate as of today for Swiss franc = $.63
Expected spot rate 1 year from now = $.64
Rate on 1-year deposits denominated in Swiss francs = 7%
Rate on 1-year deposits denominated in U.S. dollars = 9%
From the perspective of U.S. investors with $1,000,000,
covered interest arbitrage would yield a rate of return of ____%.
Answer:
12.35
Question: You just received a gift from a friend consisting of 1,000 Thai
baht, which you would like to exchange for Australian dollars
(A$). 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?
Answer:
A$39.93
Question: Assume U.S. and Swiss investors require a real rate of return of
3%. Assume the nominal U.S. interest rate is 6% and the
nominal Swiss rate is 4%. According to the international Fisher
effect, the franc will ____ by about ____.
Answer:
appreciate; 2%
Question: The international Fisher effect (IFE) suggests that:
Answer:
a home currency will depreciate if the current home interest rate exceeds the current
foreign interest rate.
2026/2027
Question: Assume the following bid and ask rates of the pound for two
banks as shown below:
Bank C
Bid - $1.61
Ask - $1.63
Bank D
Bid - $1.58
Ask - $1.60
As locational arbitrage occurs:
Answer:
the bid rate for pounds at Bank C will decrease; the ask rate for pounds at Bank D will
increase.
Question: Assume the British pound is worth $1.60, and the Canadian
dollar is worth $.80. What is the value of the Canadian dollar in
pounds?
Answer:
.50
Question: When using ____, funds are typically tied up for a significant
period of time.
Answer:
covered interest arbitrage
Question: Due to ____, market forces should realign the relationship
between the interest rate differential of two currencies and the
forward premium (or discount) on the forward exchange rate
between the two currencies.
Answer:
covered interest arbitrage
Question: Due to ____, market forces should realign the spot rate of a
currency among banks.
Answer:
locational arbitrage
, Question: Bank A quotes a bid rate of $.300 and an ask rate of $.305 for
the Malaysian ringgit (MYR). Bank B quotes a bid rate of $.306
and an ask rate of $.310 for the ringgit. What will be the profit
for an investor who has $500,000 available to conduct
locational arbitrage?
Answer:
$1,639
Question: Spot rate today of Swiss franc = $.60
1-year forward rate as of today for Swiss franc = $.63
Expected spot rate 1 year from now = $.64
Rate on 1-year deposits denominated in Swiss francs = 7%
Rate on 1-year deposits denominated in U.S. dollars = 9%
From the perspective of U.S. investors with $1,000,000,
covered interest arbitrage would yield a rate of return of ____%.
Answer:
12.35
Question: You just received a gift from a friend consisting of 1,000 Thai
baht, which you would like to exchange for Australian dollars
(A$). 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?
Answer:
A$39.93
Question: Assume U.S. and Swiss investors require a real rate of return of
3%. Assume the nominal U.S. interest rate is 6% and the
nominal Swiss rate is 4%. According to the international Fisher
effect, the franc will ____ by about ____.
Answer:
appreciate; 2%
Question: The international Fisher effect (IFE) suggests that:
Answer:
a home currency will depreciate if the current home interest rate exceeds the current
foreign interest rate.
