Exam 11: Foreign Exchange

Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States.The exchange rate between the franc and the dollar is

In 1987, currency speculator Andy Krieger made a lucrative currency trade.Believing that the New Zealand dollar was overvalued, Krieger bet on its fall, selling hundreds of millions of dollars at a time and pushing its value down.He profited by re-buying New Zealand dollars when the price bottomed out.What Krieger was engaging in was a(n)

If Citibank quoted bid and offer rates for the Swiss franc at $.4850/$.4854, then the bank would be prepared to buy, say, 1 million francs for $485,000 and sell them for $485,400.

A foreign currency trader who works for a bank is assigned a position limit that stipulates the amount of buying and selling that can be conducted in a given currency.

Given the foreign currency market for the Swiss franc, the supply of francs slopes upward, because as the dollar price of the franc rises

Is it possible to trade foreign exchange in the futures market? How does such trading differ from the forward market?

Suppose the exchange rate between the Japanese yen and the U.S.dollar is 100 yen per dollar.A Japanese stereo with a price of 60,000 yen will cost

Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days.You can remove the risk of loss due to a devaluation of the pound sterling by

Concerning foreign currency trading, an option contract provides the holder the right to buy or sell a fixed amount of currency at a prearranged price within a few days or a couple of years.

Figure 11.1. Supply and Demand Schedules of Francs ​ -Refer to Figure 11.1.Suppose the exchange rate is $.70 per franc.At this exchange rate, there is an ____ of francs which leads to a ____ in the dollar price of the franc, a(n) ____ in the quantity of francs supplied, and a(n) ____ in the quantity of francs demanded.

Which of the following tends to cause the U.S.dollar to appreciate in value?

Figure 11.3 The Market for the Euro -Refer to Figure 11.3.If the supply curve shifts from S₂ to S₁, then

Last month, the exchange rate between the U.S.dollar and the Japanese yen was 100 yen per dollar.The exchange rate is currently at 110 per dollar.We can say that

Suppose that real incomes increase more rapidly in the United States than in Mexico.In the United States, this situation would likely result in a(n)

A(n) ____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future.

The most important (in terms of dollar value) type of foreign exchange transaction by U.S.banks is the

When short-term interest rates become lower in Tokyo than in New York, interest arbitrage operations will most likely result in a(n)

If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, you could remove the risk of loss due to the appreciation of the pound by

The "spread" is a bank's profit margin on foreign exchange trading and equals the difference between the bid rate and the offer rate.

Over time, a depreciation in the value of a nation's currency in the foreign exchange market will result in