Question 1

Interest rate parity (IRP) implies that:

Accepted Answer

A)  international interest rates are irrelevant to exchange rate behaviour. 
B)  market interest rates for similar risk instruments tend to equate across countries on an exchange- rate- adjusted basis. 
C)  the annual depreciation of the home currency equals the foreign interest rate. 
D)  the forward rate (F) plus the spot rate (S) equals the interest rate (R). 
A)  international interest rates are irrelevant to exchange rate behaviour. 
B)  market interest rates for similar risk instruments tend to equate across countries on an exchange- rate- adjusted basis. 
C)  the annual depreciation of the home currency equals the foreign interest rate. 
D)  the forward rate (F) plus the spot rate (S) equals the interest rate (R).

Question 2

Assume that the Australian interest rate is 2% higher than the US interest rate. Then funds will flow out of Australia to the US and cause the AUD to depreciate.

Accepted Answer

A) True 
 B)False

Question 3

Australia's exchange rate regime is called a:

Accepted Answer

A)  adjustable link system. 
B)  crawling peg system. 
C)  fixed rate system. 
D)  floating rate system. 
A)  adjustable link system. 
B)  crawling peg system. 
C)  fixed rate system. 
D)  floating rate system.

Question 4

The indirect method of FX quoting is used in:

Accepted Answer

A)  North America. 
B)  Asian countries. 
C)  European countries. 
D)  Commonwealth countries. 
A)  North America. 
B)  Asian countries. 
C)  European countries. 
D)  Commonwealth countries.

Question 5

If d = depreciation of country A's currency relative to B's, pA = inflation in A and pB = inflation in B, the equation for PPP is:

Accepted Answer

A)  d = pA / pB. 
B)  d = pA - pB. 
C)  d = pA + pB. 
D)  d = pA × pB. 
A)  d = pA / pB. 
B)  d = pA - pB. 
C)  d = pA + pB. 
D)  d = pA × pB.

Question 6

Suppose an Australian importer buys manufacturing equipment from France worth 50 million Euros at an exchange rate of AUD/EUR of 0.9622. Suppose that the exchange rate depreciates a week later to AUD/EUR = 0.9582. The net change in the import bill after the depreciation is:

Accepted Answer

A)  $0.44 million. 
B)  $0.22 million. 
C)  minus $0.20 million. 
D)  minus $0.37 million. 
A)  $0.44 million. 
B)  $0.22 million. 
C)  minus $0.20 million. 
D)  minus $0.37 million.

Question 7

Losses that arise as a result of the impact of unfavourable movements in market prices are known as operational risk.

Accepted Answer

A) True 
 B)False

Question 8

Foreign exchange swaps are best described as:

Accepted Answer

A)  the right but not the obligation to buy or sell a currency by an agreed future date at an agreed price. 
B)  a contract in which one currency is exchanged for another at a price set now and delivered in more than two days' time. 
C)  a contract for the simultaneous buying and selling of one currency in exchange for another at various value dates. 
D)  buying a currency and then reversing the position by selling a short time afterwards. 
A)  the right but not the obligation to buy or sell a currency by an agreed future date at an agreed price. 
B)  a contract in which one currency is exchanged for another at a price set now and delivered in more than two days' time. 
C)  a contract for the simultaneous buying and selling of one currency in exchange for another at various value dates. 
D)  buying a currency and then reversing the position by selling a short time afterwards.

Question 9

Outline the various factors influencing exchange rates.

Accepted Answer

Exchange rates, which are the value of o

Question 10

If the expected sharemarket yield in Australia is 16% per annum and the expected annual depreciation of the AUD/USD exchange rate is 4%, then 'share market parity' (SMP) says that:

Accepted Answer

A)  the authorities can reverse the fortunes of the AUD by reducing the return on the Australian sharemarket. 
B)  the expected sharemarket return in the US is 12%. 
C)  the Australian sharemarket's apparent outperforming of the US market is simply a statistical effect. 
D)  the expected sharemarket return in the US is 20%. 
A)  the authorities can reverse the fortunes of the AUD by reducing the return on the Australian sharemarket. 
B)  the expected sharemarket return in the US is 12%. 
C)  the Australian sharemarket's apparent outperforming of the US market is simply a statistical effect. 
D)  the expected sharemarket return in the US is 20%.

Question 11

If an exporter to the US expects the AUD to depreciate, she will buy the USD forward.

Accepted Answer

A) True 
 B)False

Question 12

In a direct FX quote:

Accepted Answer

A)  the price is expressed in terms of x units of the home currency per unit of the overseas currency. 
B)  the price is expressed in terms of one unit of the home currency per x units of the overseas currency. 
C)  the quote is officially listed on the RBA dealing screen. 
D)  the quote is given via a broker rather than a bank. 
A)  the price is expressed in terms of x units of the home currency per unit of the overseas currency. 
B)  the price is expressed in terms of one unit of the home currency per x units of the overseas currency. 
C)  the quote is officially listed on the RBA dealing screen. 
D)  the quote is given via a broker rather than a bank.

Question 13

If a trader quotes the following exchange rate AUD/USD 0.7000- 0.7010, what is the spread?

Accepted Answer

A)  5 
B)  10 
C)  70 
D)  It cannot be determined. 
A)  5 
B)  10 
C)  70 
D)  It cannot be determined.

Question 14

Which of the following is a FX instrument?

Accepted Answer

A)  Forward contract. 
B)  FX swap. 
C)  Spot contract. 
D)  All of the above. 
A)  Forward contract. 
B)  FX swap. 
C)  Spot contract. 
D)  All of the above.

Question 15

As the exchange rate declines:

Accepted Answer

A)  the aggregate level of imports into the economy tends to fall. 
B)  the volume of FX trading tends to fall. 
C)  the need for RBA intervention tends to fall. 
D)  the aggregate level of exports from the economy tends to fall. 
A)  the aggregate level of imports into the economy tends to fall. 
B)  the volume of FX trading tends to fall. 
C)  the need for RBA intervention tends to fall. 
D)  the aggregate level of exports from the economy tends to fall.

Question 16

An argument used in favour of fixed exchange rates is that it removes the uncertainty that arises out of currency movements.

Accepted Answer

A) True 
 B)False

Question 17

An exporter selling to the US market wishes to hedge a future foreign exchange transaction using the forward market. He will:

Accepted Answer

A)  buy and sell the USD forward today. 
B)  buy the USD forward today. 
C)  sell the USD forward today. 
D)  buy and sell the USD in the future at the future spot price. 
A)  buy and sell the USD forward today. 
B)  buy the USD forward today. 
C)  sell the USD forward today. 
D)  buy and sell the USD in the future at the future spot price.

Question 18

The real exchange rate (RER) is defined as RER = E × (PA/PO) where E is the number of units of foreign currency per AUD, PA is the price level in Australia, and PO is the weighted average of prices in the trading partner countries.

Accepted Answer

A) True 
 B)False

Question 19

In the world of FX, 'sentiment' refers to the mood and prevailing opinion in the market about a given currency's prospects.

Accepted Answer

A) True 
 B)False

Question 20

The international code for the UK pound sterling is GBP.

Accepted Answer

A) True 
 B)False

Interest rate parity (IRP) implies that:

Assume that the Australian interest rate is 2% higher than the US interest rate. Then funds will flow out of Australia to the US and cause the AUD to depreciate.

Australia's exchange rate regime is called a:

The indirect method of FX quoting is used in:

If d = depreciation of country A's currency relative to B's, pA = inflation in A and pB = inflation in B, the equation for PPP is:

Suppose an Australian importer buys manufacturing equipment from France worth 50 million Euros at an exchange rate of AUD/EUR of 0.9622. Suppose that the exchange rate depreciates a week later to AUD/EUR = 0.9582. The net change in the import bill after the depreciation is:

Losses that arise as a result of the impact of unfavourable movements in market prices are known as operational risk.

Foreign exchange swaps are best described as:

Outline the various factors influencing exchange rates.

If the expected sharemarket yield in Australia is 16% per annum and the expected annual depreciation of the AUD/USD exchange rate is 4%, then 'share market parity' (SMP) says that:

If an exporter to the US expects the AUD to depreciate, she will buy the USD forward.

In a direct FX quote:

If a trader quotes the following exchange rate AUD/USD 0.7000- 0.7010, what is the spread?

Which of the following is a FX instrument?

As the exchange rate declines:

An argument used in favour of fixed exchange rates is that it removes the uncertainty that arises out of currency movements.

An exporter selling to the US market wishes to hedge a future foreign exchange transaction using the forward market. He will:

The real exchange rate (RER) is defined as RER = E × (PA/PO) where E is the number of units of foreign currency per AUD, PA is the price level in Australia, and PO is the weighted average of prices in the trading partner countries.

In the world of FX, 'sentiment' refers to the mood and prevailing opinion in the market about a given currency's prospects.

The international code for the UK pound sterling is GBP.

Financial Markets

Debt Securities and Markets

Introduction to Financial Calculations

Banks and Other Deposit Taking Institutions

The Payments System

Managed and Superannuation Funds

Interest Rates, the Yield Curve and Monetary Policy

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Exam 8: The Foreign Exchange Market

Interest rate parity (IRP) implies that:

Assume that the Australian interest rate is 2% higher than the US interest rate. Then funds will flow out of Australia to the US and cause the AUD to depreciate.

Australia's exchange rate regime is called a:

The indirect method of FX quoting is used in:

If d = depreciation of country A's currency relative to B's, pA = inflation in A and pB = inflation in B, the equation for PPP is:

Suppose an Australian importer buys manufacturing equipment from France worth 50 million Euros at an exchange rate of AUD/EUR of 0.9622. Suppose that the exchange rate depreciates a week later to AUD/EUR = 0.9582. The net change in the import bill after the depreciation is:

Losses that arise as a result of the impact of unfavourable movements in market prices are known as operational risk.

Foreign exchange swaps are best described as:

Outline the various factors influencing exchange rates.

If the expected sharemarket yield in Australia is 16% per annum and the expected annual depreciation of the AUD/USD exchange rate is 4%, then 'share market parity' (SMP) says that:

If an exporter to the US expects the AUD to depreciate, she will buy the USD forward.

In a direct FX quote:

If a trader quotes the following exchange rate AUD/USD 0.7000- 0.7010, what is the spread?

Which of the following is a FX instrument?

As the exchange rate declines:

An argument used in favour of fixed exchange rates is that it removes the uncertainty that arises out of currency movements.

An exporter selling to the US market wishes to hedge a future foreign exchange transaction using the forward market. He will:

The real exchange rate (RER) is defined as RER = E × (PA/PO) where E is the number of units of foreign currency per AUD, PA is the price level in Australia, and PO is the weighted average of prices in the trading partner countries.

In the world of FX, 'sentiment' refers to the mood and prevailing opinion in the market about a given currency's prospects.

The international code for the UK pound sterling is GBP.

Financial Markets

Debt Securities and Markets

Introduction to Financial Calculations

Banks and Other Deposit Taking Institutions

The Payments System

Managed and Superannuation Funds

Interest Rates, the Yield Curve and Monetary Policy

Listed Securities

Fixed Rate Derivatives

Options

Global Financial Crisis

Managing Foreign Exchange Risk

Managing Interest Rate Risk

Filters