Question 1

Assume that current dollar/yen spot exchange rate is $1 = ¥110.If the 30-day forward exchange is $1 = ¥105,we say the dollar is selling at a premium on the 30-day forward market.

Accepted Answer

A) True 
 B)False

Question 2

According to economic theory,interest rates reflect expectations about likely _____.

Accepted Answer

A)   spot exchange rates
B)   unemployment rates
C)   forward exchange rates
D)   future inflation rates
E)   GDP growth ratesF) B) and E)
G) A) and E)

Question 3

Which of the following positions is adopted by the inefficient market school of thought toward exchange rate forecasting?

Accepted Answer

A)   Forward exchange rates are the best possible predictors of future spot exchange rates.
B)   Forward exchange rates represent market participants' collective predictions of likely spot exchange rates.
C)   Companies cannot beat the markets because forward rates reflect all available information about likely future changes in exchange rates.
D)   Investing in forecasting services can improve the foreign exchange market's estimate of future exchange rates.
E)   The foreign exchange market is efficient at setting forward rates which are unbiased predictors of future spot rates.F) B) and C)
G) A) and B)

Question 4

Which of the following enables organizations to conduct international trade without having to resort to barter?

Accepted Answer

A)   Foreign exchange market
B)   Caribbean Single Market and Economy
C)   Auction market
D)   Countertrade
E)   Balance-of-Trade EquilibriumF) A) and C)
G) C) and D)

Question 5

How do foreign exchange markets benefit international businesses?

Accepted Answer

International businesses have four main ...

Question 6

What is meant by carry trade? Why is it risky? Explain with an example.

Accepted Answer

A kind of speculation that has become mo...

Question 7

Which of the following is an example of transaction exposure?

Accepted Answer

A)   Obligations for the purchase of goods at previously agreed prices
B)   Borrowing of funds in domestic currency
C)   Impact of currency exchange rate changes on the reported financial statements of a company
D)   Long-term effect of changes in exchange rates
E)   The effect of changing exchange rates on future prices, sales, and costsF) A) and E)
G) A) and B)

Question 8

A dealer wishes to sell Thai baht for Argentine peso.Which of the following currencies is most likely to act as a vehicle currency in this transaction?

Accepted Answer

A)   Malaysian ringgit
B)   Japanese yen
C)   British pound
D)   U.S. dollar
E)   South African randF) A) and B)
G) A) and D)

Question 9

Although a foreign exchange transaction can involve any two currencies,most transactions involve dollars on one side.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is a step taken to manage foreign exchange risk?

Accepted Answer

A)   Firms should focus solely on managing transaction and translation exposures.
B)   Forecasting future exchange rate movements should be avoided as it is speculative.
C)   Firms need to develop strategies for dealing with economic exposure.
D)   Firms should avoid central control of exposure.
E)   Firms should not distinguish between transaction and translation exposure and economic exposure.F) B) and E)
G) C) and E)

Question 11

The foreign exchange market offers complete insurance against foreign exchange risk.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following refers to the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values?

Accepted Answer

A)   Translation exposure
B)   Economic exposure
C)   Purchasing power parity
D)   Transaction exposure
E)   Forward exchange rateF) All of the above
G) A) and E)

Question 13

Which of the following is a function of the foreign exchange market?

Accepted Answer

A)   To provide some insurance against foreign exchange risk
B)   To protect short-term cash flow from adverse changes in exchange rates
C)   To eliminate volatile changes in exchange rates
D)   To reduce the economic exposure of a firm
E)   To enable companies to engage in capital flight when countertrade is not possibleF) B) and C)
G) B) and E)

Question 14

Which of the following instances indicates that the dollar is selling at a premium on the 30-day forward market?

Accepted Answer

A)   When the spot exchange rate is currently $1 = ¥120 and changes to $1 = ¥130 after 30 days
B)   When the spot exchange rate is currently $1 = ¥120 and changes to $1 = ¥110 after 30 days
C)   When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥110 after 30 days
D)   When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥130 after 30 days
E)   When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥120F) C) and D)
G) A) and D)

Question 15

Leading and lagging strategies involve accelerating payments from weak-currency to strong-currency countries and delaying inflows from strong-currency to weak-currency countries.

Accepted Answer

A) True 
 B)False

Question 16

A lag strategy involves:

Accepted Answer

A)   delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate.
B)   delaying the collection of foreign currency receivables when a foreign currency is expected to depreciate.
C)   attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate.
D)   paying foreign currency payables (to suppliers)  before they are due when a currency is expected to appreciate.
E)   paying foreign currency payables (to suppliers)  before they are due when a currency is expected to depreciate.F) None of the above
G) A) and E)

Question 17

A currency is said to be _____ when only nonresidents may convert it into a foreign currency without any limitations.

Accepted Answer

A)   externally convertible
B)   nonconvertible
C)   leading
D)   freely convertible
E)   laggingF) A) and B)
G) All of the above

Question 18

Which of the following refers to countertrade?

Accepted Answer

A)   A short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates
B)   The exchange rate at which a foreign exchange dealer will convert one currency into another that particular day
C)   Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
D)   The purchase of securities in one market for immediate resale in another to profit from a price discrepancy
E)   A range of barter-like agreements by which goods and services can be exchanged for other goods and servicesF) None of the above
G) A) and C)

Question 19

The euro/dollar exchange rate is €1 = $1.20.If it costs $36 to buy a European product,the stated price of the product would be €36.

Accepted Answer

A) True 
 B)False

Question 20

Describe the factors that explain the failure of the purchasing power parity theory to predict exchange rates accurately.

Accepted Answer

Several factors explain the failure of P...

Exam 10: The Foreign Exchange Market

According to economic theory,interest rates reflect expectations about likely _____.

Correct AnswerverifiedShow Answer

Which of the following positions is adopted by the inefficient market school of thought toward exchange rate forecasting?

Correct AnswerverifiedShow Answer

A lag strategy involves:

Correct AnswerverifiedShow Answer

Assume that current dollar/yen spot exchange rate is $1 = ¥110.If the 30-day forward exchange is $1 = ¥105,we say the dollar is selling at a premium on the 30-day forward market.

Correct AnswerverifiedShow Answer

Which of the following is an example of transaction exposure?

Correct AnswerverifiedShow Answer

What is meant by carry trade? Why is it risky? Explain with an example.

Correct AnswerverifiedA kind of speculation that has become mo...View AnswerShow Answer

Which of the following instances indicates that the dollar is selling at a premium on the 30-day forward market?

Correct AnswerverifiedShow Answer

How do foreign exchange markets benefit international businesses?

Correct AnswerverifiedInternational businesses have four main ...View AnswerShow Answer

Which of the following refers to the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values?

Correct AnswerverifiedShow Answer

Which of the following enables organizations to conduct international trade without having to resort to barter?

Correct AnswerverifiedShow Answer

Which of the following is a step taken to manage foreign exchange risk?

Correct AnswerverifiedShow Answer

The euro/dollar exchange rate is €1 = $1.20.If it costs $36 to buy a European product,the stated price of the product would be €36.

Correct AnswerverifiedShow Answer

Which of the following refers to countertrade?

Correct AnswerverifiedShow Answer

Describe the factors that explain the failure of the purchasing power parity theory to predict exchange rates accurately.

Correct AnswerverifiedSeveral factors explain the failure of P...View AnswerShow Answer

The foreign exchange market offers complete insurance against foreign exchange risk.

Correct AnswerverifiedShow Answer

Leading and lagging strategies involve accelerating payments from weak-currency to strong-currency countries and delaying inflows from strong-currency to weak-currency countries.

Correct AnswerverifiedShow Answer

Although a foreign exchange transaction can involve any two currencies,most transactions involve dollars on one side.

Correct AnswerverifiedShow Answer

A currency is said to be _____ when only nonresidents may convert it into a foreign currency without any limitations.

Correct AnswerverifiedShow Answer

A dealer wishes to sell Thai baht for Argentine peso.Which of the following currencies is most likely to act as a vehicle currency in this transaction?

Correct AnswerverifiedShow Answer

Which of the following is a function of the foreign exchange market?

Correct AnswerverifiedShow Answer

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A kind of speculation that has become mo...
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International businesses have four main ...
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Several factors explain the failure of P...
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