Economics

Question 1

How are currencies quoted and what does it mean to be long or short?

Answer 1

Question 2

When does settlement occur for currency trades and descibe how bid/ask rates work?

Answer 2

Question 3

Explain how different timezones affect spreads?

Answer 3

most liquid when UK/NA both open

Question 4

Explain how spread are effected by volatilities and brokers?

Answer 4

Question 5

What are the two dealer bid arbitrage constraints and when can triangular arbitrage occur?

Answer 5

Question 6

Describe the general approach to triangular arbitrage?

Answer 6

Question 7

What is the relationship that fowrad and spot rates must satisfy?

Answer 7

Question 8

What is covered interest rate parity and how to the rearranged equation for forward premium/discount?

Answer 8

Question 9

When will the domestic (base) currency trade at a premium / discount?

Answer 9

Question 10

How are forward rates usually quoted and why the longer the term the larger the spread?

Answer 10

Question 11

What is the value of a forward contract at inception and how is mark to market done?

Answer 11

3 - discount to using the appropriate LIBOR rate

Question 12

What do parity relations and conditions allow for?

Answer 12

Question 13

What parity conditions show, what is covered interest parity and what do empirical studies show?

Answer 13

Question 14

What is uncovered interest rate parity and what does it imply?

Answer 14

Question 15

Under UIRP a country with a higher interest rate will experience what? What if UIRP held ? What do empirical studies show?

Answer 15

Question 16

UIRP example

Answer 16

Question 17

What is PPP and the absolute version?

Answer 17

Question 18

Why is PPP unlikely to hold and what is the relative version and what is ex-ante version?

Answer 18

Question 19

What inflation differentials cause nominal fx rates to do? What are real exchange rates and the formula? What do empircal studies show about real fx rates?

Answer 19

Question 20

What is the fisher effect and what happens if UIRP and ex-ante PPP hold?

Answer 20

Question 21

What does real interest rate parity imply, what do empirical studies suggest?

Answer 21

Question 22

Summary diagram, what happens if all international parity conditions held? Explain the relationship between F-D inflation differential to change in spot rate and to F-D interest rate differential? Explain the relationships between expected change in spot rate, F-D interest rate differential and Forward discount?

Answer 22

Question 23

Describe the IMF approach, MacroEcon balance and External sustainability approach?

Answer 23

Question 24

What is the reduced form economic model approach, what are the empirical observations?

Answer 24

Question 25

What is the action required to bring fx rate closer to fair value when, CA+ and PPP over/under valued, CA- and PPP over/under valued?

Answer 25

Question 26

Explain the carry trade and how UIRP is involved

Answer 26

Question 27

Are carry trades usually high/low leverage, how to account for volatility and PPP is used and what is the policy perspective on the carry trade?

Answer 27

Question 28

Carry trade example

Answer 28

Question 29

What is the current account what does CA+/- lead to, whats the relationship between capital account and current account, what is the dominant factor in determining short to medium term exchange rate movements?

Answer 29

Question 30

What is the four reasons why capital account is dominant factor in short to medium term exchange rate movements?

Answer 30

Question 31

How do current account imbalances occur through flow supply/demand channel ?

Question 32

What does the amount of adjustment required to restore balance depend on?

Answer 32

Question 33

What is the portfolio balance channel?

Answer 33

Question 34

What is the debt sustainability channel?

Answer 34

Question 35

What has happened to global capital markets, what are the consequences and what did this bring about?

Answer 35

Question 36

Describe the relationship between interest rate differential, capital flows and the fx rate and what is the equation? What is the equation linking interest rate differential, carry trade and fx rate?

Answer 36

Question 37

Explain the impact of increasing interest rates on the real fx rate and the real long term fx rate?

Answer 37

Question 38

Carry trade is a function of what? What is the relationship between equity markets and fx rates?

Answer 38

Question 39

Describe expansionary fiscal and monetary policy and the effect of each on fx rates and the more responsive capital flows are to interest rate differentials the .......?

Answer 39

Question 40

Explain expansionary M&F policy with fixed fx rate and the effect on credit conditions?

Answer 40

Question 41

Explain the expansionary contractionary F&M policy effect on the currency with high capital mobility and then the same but with capital restrictions?

Answer 41

Question 42

How does the monetary approach influence fx rates versus mundell flemming

Answer 42

Question 43

What is the dornbuche overshooting model?

Answer 43

Question 44

What does the portfolio balance approach fix of the mundell flemming approach and what is the portoflio balance approach?

Answer 44

Question 45

Explain the effect of expansionary fiscal policy in short and long term and the end result on the currency for each?

Answer 45

Question 46

What pushes money out of a domestic economy and pulls it into a foreign one, what are the IMF guidelines for undervalued currency and overvalued with no inflation threat?

Answer 46

Question 47

Guidelines for fair/overvalued when inflation is a threat and if there is a limit to sterilisation? What is the effectiveness for developing/developed economies?

Answer 47

Question 48

What are the 8 warning signs of a currency crisis?

Answer 48

Question 49

How does economic growth affect real returns, equity prices and bond prices? What does potential output comprise?

Answer 49

Question 50

What are the two standard methods of comparing countries well being?

Answer 50

Question 51

Explanations of differences in GDP growth rate between developed and developing, S&I and financial markets and intermediaries?

Answer 51

Question 52

Third and fourth reason for differences in growth rate?

Answer 52

3. Political stability, rule of law and property rights

Question 53

Reasons 5 and 6

Answer 53

Question 54

How is earnings growth impacted by the limit that potential GDP places on growth?

Answer 54

Question 55

equation for average price of stock market and the implications in short and long term?

Answer 55

Question 56

Long term equity forcast example

Answer 56

Question 57

Explain how growth rate in potential GDP affects real interest rates and the affect on general credit quality?

Answer 57

Question 58

What is the simple and cobb douglas production function?

Answer 58

Question 59

What does alpha and 1-alpha represent?

Answer 59

Question 60

Explain the property of CD function that is constant returns to scale?

Answer 60

Question 61

Explain the property of diminishing marginal productivity and the difference between capital depending and technological progress?

Answer 61

Question 62

Explain technological progress and capital deepening in relation to the steady state level of output

Answer 62

Question 63

What is the effect on two countries where one as much higher K/L from higher interest rates, higher uni research and eliminate restriction on foreign investment for low capital country?

Answer 63

Question 64

What is the growth accounting equation and what is alpha and 1-alpha ?

Answer 64

Question 65

What is needed to estimate potential GDP, what is the alternative labour productivity method of doing it?

Answer 65

Question 66

What are the types of natural resources and how may it restrain growth? What is the labour force and what does it depend on?

Answer 66

Question 67

Explain how population growth, labour force participation and net migration affect labour supply?

Answer 67

Question 68

What is labour quality and ICT and non-ICT capital?

Answer 68

Question 69

How does technology affect the production function and what is the issue with technology in developed economies?

Question 70

Explain the classical model of growth theory and its failures?

Answer 70

failures 1) as income/capita increases, population growth slows, not accelerates rate of 2) growth rate of technological process > diminishing returns

Question 71

Explain the neo-classical solow growth model and what happens at steady state, what is Y/Capita a function of?

Answer 71

Question 72

What is the equation for Y/K in steady state and what are the implications?

Answer 72

Theta = growth rate of technological progress

Question 73

What is needed to keep investment constant?

Answer 73

Question 74

For the Neo-classical model explain capital accumulations, Deepening vs Technology, Convergence and Effect of savings on growth

Answer 74

Question 75

What is endogenous growth theory and its properties?

Answer 75

Question 76

What is the output s function of? What is MPK, what does a higher saving rate imply, what can govt do if private sector under invests, what does it say about convergence between devleoping and developed economies?

Answer 76

Question 77

What are the two types of convergence?

Answer 77

Question 78

What are the two routes to convergence?

Answer 78

Question 79

How doe growth occur in an open economy?

Answer 79

Question 80

Why is regulation necessary, what is a pareto optimal allocation, what are information frictions and externalities?

Answer 80

Question 81

What is the economic rationale behind weak competition and social objectives?

Answer 81

Question 82

Why are financial markets regulated? How is commerce regulated?

Answer 82

Question 83

What are antitrust policies and their purpose?

Answer 83

Question 84

Who are the regulators and what are the regulations enforced? Who are independent regulator?

Answer 84

Question 85

Describe industry self regulatory bodies and SRO's?

Answer 85

Question 86

What is regulatory capture theory and regulatory competition/arbitrage?

Answer 86

Question 87

What are the four regulatory tools?

Answer 87

Question 88

What is the regulatory burden and the net regulatory burden?

Answer 88

Question 89

What are the two main methods of regulation analysis and the potential effects?

Answer 89

Question 90

What is a statute, administrative law and judicial law?

Answer 90

Question 91

Explain club and relative convergence

Answer 91