Question Details

What most likely happened to interest rates 



1. "But economists predict most countries will conclude that their best course is to make floating rates more tolerable, for example, by increasing opportunities for companies and banks to hedge themselves against currency swings." What is meant by "to hedge themselves against currency swings"? 
a) engaging in simultaneous buying and selling of foreign currency 140 
b) requiring of foreigners that all payments be made in domestic currency 
c) buying foreign currency on the forward market when export sales receipts are expected 
d) selling foreign currency on the forward market when export sales receipts are expected 
2. "But that still leaves an enormous five percentage point spread between the world's two most powerful central banks - 8% in Germany and 3% in the U.S. The question raised when the German - American spread began to widen last year was: Who is following the right policy? A possible answer is that both central bank leaders were following the right policy." Both central banks could be following the right policy here because 
a) inflation was increasing in Germany but not in the U.S. 
b) unemployment was higher in the U.S. than in Germany 
c) the risk premium for investing in Germany had risen 
d) the clipping is wrong - the spread should be narrowing 
3. "When interest rates abroad are rising rapidly as they have risen in recent months, the scope for Canadian interest rates to lag behind foreign rates is necessarily limited unless we want to invite yet further substantial depreciation of the currency." Is this statement correct? 
a) yes because of purchasing power parity 
b) no because we can fix the exchange rate 
c) no because it is the real interest rate that is relevant here 
d) yes because relatively lower Canadian interest rates would decrease capital inflows 
4. “Pressures from a household spending spree and the buoyant building sector won the battle to determine interest rates yesterday, but the central bank hinted that the strong currency could win the war.” What most likely happened to interest rates ? 
a) they rose b) they fell c) they were unchanged d) can’t tell 




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