Which of the following statements of the expected flow of future benefits is false?
A. If future benefits are overestimated by the firm, the firm will under invest in capital.
B. Firms must rely on forecasts of expected future benefits to make sensible investment decisions.
C. If future benefits are underestimated by the firm, the firm will under invest in capital.
D. Households, business firms, and governments all evaluate the expected flow of benefits when making investment decisions.
Answer: A
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Suppose a bank in Germany borrows $2 million U.S at an interest rate of 5%. The bank then converts the amount into euros, the local currency, at a rate of 2 euros per dollar. It lends the €4 million at an interest rate of 15% to other firms. After one year, the loan is repaid with interest, and the bank receives €4.6 million. The bank now wants to pay back the debt. If the current exchange
rate is 3 euros per dollar, the bank will: a. face a loss of $570,000 approximately. b. face a loss of $470,000 approximately. c. make a profit of $500,000 approximately. d. make a profit of $320,000 approximately.
Expansionary monetary policy involves actions that:
A. increase the money supply in order to decrease aggregate demand. B. increase the money supply in order to increase aggregate demand. C. reduce the money supply in order to decrease aggregate demand. D. reduce the money supply in order to increase aggregate demand.
If the price of a euro (the European currency) increases from $1.00 to $1.10, then, everything else held constant
A) a European vacation becomes less expensive. B) a European vacation becomes more expensive. C) the cost of a European vacation is not affected. D) foreign travel becomes impossible.
Suppose there's an 80% chance of a stock rising by 20% and a 20% chance of it falling by 40%. Which type of investor would prefer an investment with a guaranteed return of 5%?
A) risk loving investor B) risk neutral investor C) risk averse investor D) risk is not relevant in this example