The idea of the carry trade is that you can borrow in a _______________ currency and use that money to invest in a _________________ currency. *

a. low interest; high interest

b. high interest; low interest

c. domestic; foreign

d. foreign; domestic

The diversified carry trade differs from the simple carry trade in that investors put their money into a bundle of ________________. *

a. high real interest rate currencies

b. high nominal interest rate currencies

c. real goods and currency

d. international goods and services

“Exchange rates go up by the stairs and down by the elevator.” What does this saying mean? *

a. weak currencies tend to rise in value rapidly but fall slowly

b. weak currencies tend to rise in value slowly but fall rapidly

c. strong currencies tend to rise in value rapidly but fall slowly

d. strong currencies tend to rise in value slowly but fall rapidly

Uncovered interest parity differs from covered interest parity. Under uncovered interest parity: *

a. investors disregard the spot exchange rate

b. investors do not engage in arbitrage

c. investors hedge their risk in forward markets

d. investors do not hedge their risk in forward markets