Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Many economists compare the process of ________ to fortune-telling because there is no rationale for the assumption of predictability.

Accepted Answer

A)  the efficient market school 
B)  fundamental analysis 
C)  a planned economy 
D)  the inefficient market school 
E)  technical analysis 
A)  the efficient market school 
B)  fundamental analysis 
C)  a planned economy 
D)  the inefficient market school 
E)  technical analysis

Question 3

A country that relies on technical analysis for forecasting exchange rate movements would know that

Accepted Answer

A)  price and volume data cannot be used to determine past trends. 
B)  econometric models drawn from economic theory are best suited to predict exchange rate movements. 
C)  the foreign exchange market is efficient and forward exchange rates are the best predictors of future spot exchange rates. 
D)  previous market trends and waves can be used to predict future market trends and waves. 
E)  since forward exchange rates are the best predictors of future spot rates, it makes no sense to invest in forecasting. 
A)  price and volume data cannot be used to determine past trends. 
B)  econometric models drawn from economic theory are best suited to predict exchange rate movements. 
C)  the foreign exchange market is efficient and forward exchange rates are the best predictors of future spot exchange rates. 
D)  previous market trends and waves can be used to predict future market trends and waves. 
E)  since forward exchange rates are the best predictors of future spot rates, it makes no sense to invest in forecasting.

Question 4

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 5

________ is concerned with the present measurement of past events.

Accepted Answer

A)  Economic exposure 
B)  Transaction exposure 
C)  Arbitrage 
D)  Translation exposure 
E)  Currency speculation 
A)  Economic exposure 
B)  Transaction exposure 
C)  Arbitrage 
D)  Translation exposure 
E)  Currency speculation

Question 6

Traders at a stock exchange notice that five traders on the floor seem to be selling more yen and purchasing more euros because of an expected decline in the yen. As a result, all other traders started to do the same. This is an example of the ________ that creates a self-fulfilling prophecy when the yen does decline in value.

Accepted Answer

A)  spot exchange rate 
B)  arbitration process 
C)  bandwagon effect 
D)  difference principle 
E)  tragedy of the commons 
A)  spot exchange rate 
B)  arbitration process 
C)  bandwagon effect 
D)  difference principle 
E)  tragedy of the commons

Question 7

Differentiate between a lead strategy and a lag strategy.

Accepted Answer

A number of tactics can help firms minim

Question 8

Suppose that the government of Venezuela decided to give everyone in the country the equivalent of $20,000. Upon receipt of the money, people raced to the stores to buy furniture, electronics, and new clothes. There was such high demand for goods that producers raised prices. What is this an example of?

Accepted Answer

A)  isolationism 
B)  inflation 
C)  spot exchange 
D)  recession 
E)  a planned economy 
A)  isolationism 
B)  inflation 
C)  spot exchange 
D)  recession 
E)  a planned economy

Question 9

Describe three important features of the foreign exchange market.

Accepted Answer

Two features of the foreign exchange mar

Question 10

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

Question 11

A base model Schwinn bike costs $100 in the United States and €125 in Europe. What would the purchasing power parity theory's prediction of the dollar/euro exchange rate be based on this example?

Accepted Answer

A)  $1 = €1.25 
B)  $1 = €1 
C)  $1 = €0.80 
D)  $1 = €0.90 
E)  $1 = €1.10 
A)  $1 = €1.25 
B)  $1 = €1 
C)  $1 = €0.80 
D)  $1 = €0.90 
E)  $1 = €1.10

Question 12

The U.S. dollar is selling at a discount on the 30-day forward market when what is taking place?

Accepted Answer

A)  The spot exchange rate is $1 = ¥120 currently and $1 = ¥130 after 30 days. 
B)  The spot exchange rate is $1 = ¥120 currently and $1 = ¥100 after 30 days. 
C)  The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥110 after 30 days. 
D)  The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥130 after 30 days. 
E)  The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥120 after 30 days. 
A)  The spot exchange rate is $1 = ¥120 currently and $1 = ¥130 after 30 days. 
B)  The spot exchange rate is $1 = ¥120 currently and $1 = ¥100 after 30 days. 
C)  The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥110 after 30 days. 
D)  The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥130 after 30 days. 
E)  The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥120 after 30 days.

Question 13

One reason for the failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates is due to the

Accepted Answer

A)  impact of investor psychology on short-run exchange rate movements. 
B)  strong relationship between inflation rates and interest rates. 
C)  impact of interest rates and short-term exchange rate movements. 
D)  strong relationship between interest rate differentials and subsequent changes in spot exchange rates. 
E)  government intervention in cross-border trade that violates the assumption of efficient markets. 
A)  impact of investor psychology on short-run exchange rate movements. 
B)  strong relationship between inflation rates and interest rates. 
C)  impact of interest rates and short-term exchange rate movements. 
D)  strong relationship between interest rate differentials and subsequent changes in spot exchange rates. 
E)  government intervention in cross-border trade that violates the assumption of efficient markets.

Question 14

The foreign exchange trading center in ________ has the highest percentage of activity.

Accepted Answer

A)  Frankfurt 
B)  London 
C)  Paris 
D)  Hong Kong 
E)  Sydney 
A)  Frankfurt 
B)  London 
C)  Paris 
D)  Hong Kong 
E)  Sydney

Question 15

Carry trade occurs when borrowing is done in one currency where interest rates are low and using the proceeds to invest in another country where interest rates are high.

Accepted Answer

A) True 
 B)False

Question 16

Compare and contrast the efficient market school and the inefficient market school of exchange rate forecasting.

Accepted Answer

A company's need to predict future excha

Question 17

A common kind of currency swap is spot against forward.

Accepted Answer

A) True 
 B)False

Question 18

An example of transaction exposure is when

Accepted Answer

A)  companies have obligations for the purchase of goods at previously agreed prices. 
B)  companies borrow funds in domestic currency. 
C)  there is an impact of currency exchange rate changes on the reported financial statements of a company. 
D)  there is a long-term effect of changes in exchange rates. 
E)  changing exchange rates persists on future prices, sales, and costs. 
A)  companies have obligations for the purchase of goods at previously agreed prices. 
B)  companies borrow funds in domestic currency. 
C)  there is an impact of currency exchange rate changes on the reported financial statements of a company. 
D)  there is a long-term effect of changes in exchange rates. 
E)  changing exchange rates persists on future prices, sales, and costs.

Question 19

Supply and demand of one currency relative to another helps determine exchange rates.

Accepted Answer

A) True 
 B)False

Question 20

Spot exchange rates and the 30-day forward rates are the same.

Accepted Answer

A) True 
 B)False

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

Many economists compare the process of ________ to fortune-telling because there is no rationale for the assumption of predictability.

A country that relies on technical analysis for forecasting exchange rate movements would know that

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

________ is concerned with the present measurement of past events.

Differentiate between a lead strategy and a lag strategy.

Describe three important features of the foreign exchange market.

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

A base model Schwinn bike costs $100 in the United States and €125 in Europe. What would the purchasing power parity theory's prediction of the dollar/euro exchange rate be based on this example?

The U.S. dollar is selling at a discount on the 30-day forward market when what is taking place?

One reason for the failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates is due to the

The foreign exchange trading center in ________ has the highest percentage of activity.

Carry trade occurs when borrowing is done in one currency where interest rates are low and using the proceeds to invest in another country where interest rates are high.

Compare and contrast the efficient market school and the inefficient market school of exchange rate forecasting.

A common kind of currency swap is spot against forward.

An example of transaction exposure is when

Supply and demand of one currency relative to another helps determine exchange rates.

Spot exchange rates and the 30-day forward rates are the same.

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Strategy of International Business

Entering Foreign Markets

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and RD

Global Human Resource Management

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Exam 10: The Foreign Exchange Market

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

Many economists compare the process of ________ to fortune-telling because there is no rationale for the assumption of predictability.

A country that relies on technical analysis for forecasting exchange rate movements would know that

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

________ is concerned with the present measurement of past events.

Differentiate between a lead strategy and a lag strategy.

Describe three important features of the foreign exchange market.

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

A base model Schwinn bike costs $100 in the United States and €125 in Europe. What would the purchasing power parity theory's prediction of the dollar/euro exchange rate be based on this example?

The U.S. dollar is selling at a discount on the 30-day forward market when what is taking place?

One reason for the failure of purchasing power parity theory and international Fisher effect in predicting short-term movements in exchange rates is due to the

The foreign exchange trading center in ________ has the highest percentage of activity.

Carry trade occurs when borrowing is done in one currency where interest rates are low and using the proceeds to invest in another country where interest rates are high.

Compare and contrast the efficient market school and the inefficient market school of exchange rate forecasting.

A common kind of currency swap is spot against forward.

An example of transaction exposure is when

Supply and demand of one currency relative to another helps determine exchange rates.

Spot exchange rates and the 30-day forward rates are the same.

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Strategy of International Business

Entering Foreign Markets

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and RD

Global Human Resource Management

Filters