Question 1

Most foreign exchange trading is done among the banks themselves in the retail part of the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 2

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively.   If the U.S. Federal Reserve uses a contractionary monetary policy, the _____ curve would shift right and the pound would tend to _____.

Accepted Answer

A) S£; appreciate 
B) D£; depreciate 
C) S£; depreciate 
D) S£; appreciate. 
A) S£; appreciate 
B) D£; depreciate 
C) S£; depreciate 
D) S£; appreciate.

Question 3

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively.   If the British government wants to peg the dollar per pound exchange rate at $2.50 per pound, what action would British monetary authorities have to undertake?

Accepted Answer

A) Sell 1 million pounds and buy 2.5 million dollars 
B) Buy 1 million pounds and sell 1 million dollars 
C) Buy 1 million pounds and sell 2.5 million dollars 
D) Buy 6 million pounds and sell 12 million dollars 
A) Sell 1 million pounds and buy 2.5 million dollars 
B) Buy 1 million pounds and sell 1 million dollars 
C) Buy 1 million pounds and sell 2.5 million dollars 
D) Buy 6 million pounds and sell 12 million dollars

Question 4

The U.S. dollar is called a _____ because it is often used as an intermediary to accomplish trading between two other currencies.

Accepted Answer

A) vehicle currency 
B) main currency 
C) common currency 
D) primary currency 
A) vehicle currency 
B) main currency 
C) common currency 
D) primary currency

Question 5

A retailer in Mexico wants to buy $100,000 worth of Apple computers from the United States. The Mexican retailer has pesos while the seller in the United States wants to be paid in U.S. dollars. Explain how this transaction is completed with particular emphasis on the foreign exchange market and banks in the United States and Mexico.

Accepted Answer

The Mexican buyer has to sell pesos to o

Question 6

Which of the following refers to foreign exchange?

Accepted Answer

A) The act of trading different nations' moneys 
B) The holdings of foreign assets 
C) The act of exchanging goods and services internationally. 
D) The adoption of foreign trade policies 
A) The act of trading different nations' moneys 
B) The holdings of foreign assets 
C) The act of exchanging goods and services internationally. 
D) The adoption of foreign trade policies

Question 7

Under a floating exchange rate system, the value of the dollar per euro exchange rate rises when:

Accepted Answer

A) The U.S.trade deficit with the euro-area countries increases. 
B) European demand for U.S.products increases. 
C) The U.S.government raises personal income tax rates. 
D) The inflation rate in the U.S.is much lower than the inflation rate in the euro-area. 
A) The U.S.trade deficit with the euro-area countries increases. 
B) European demand for U.S.products increases. 
C) The U.S.government raises personal income tax rates. 
D) The inflation rate in the U.S.is much lower than the inflation rate in the euro-area.

Question 8

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively.   Who among the following groups will most likely benefit if the exchange rate is pegged at $2.50 per pound?

Accepted Answer

A) The U.S.importers 
B) The British importers 
C) The British exporters 
D) The import-competing producers in the U.K. 
A) The U.S.importers 
B) The British importers 
C) The British exporters 
D) The import-competing producers in the U.K.

Question 9

To maintain an undervalued currency, the country's monetary authorities must intervene in the foreign exchange market to buy its currency in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 10

The exchange rate set for an immediate trade is often referred to as a:

Accepted Answer

A) managed exchange rate. 
B) pegged exchange rate. 
C) forward exchange rate. 
D) spot exchange rate. 
A) managed exchange rate. 
B) pegged exchange rate. 
C) forward exchange rate. 
D) spot exchange rate.

Question 11

Arbitrage ensures that the spot price of the currency will equal the forward price of the currency.

Accepted Answer

A) True 
 B)False

Question 12

The spot exchange rate is the current price for an exchange that will take place a month or more in the future.

Accepted Answer

A) True 
 B)False

Question 13

How can one profit through arbitrage if the dollar per euro exchange rate in London is $2 per pound while in New York is $1.95 per pound?

Accepted Answer

A) Buy dollars in New York and sell them in London 
B) Buy pounds in London and sell them in New York 
C) Buy pounds in New York and sell them in London 
D) Buy dollars in London and sell pounds in New York 
A) Buy dollars in New York and sell them in London 
B) Buy pounds in London and sell them in New York 
C) Buy pounds in New York and sell them in London 
D) Buy dollars in London and sell pounds in New York

Question 14

Government officials wanting to defend a fixed exchange rate may not have sufficient reserves of foreign currency to keep the price fixed indefinitely.

Accepted Answer

A) True 
 B)False

Question 15

In a floating exchange rate system, the dollar per pound exchange rate is determined by:

Accepted Answer

A) the American government. 
B) the British government. 
C) the interaction of the demand and supply of pounds in the foreign exchange market. 
D) the interaction of the demand for and supply of dollar-denominated assets in the stock market. 
A) the American government. 
B) the British government. 
C) the interaction of the demand and supply of pounds in the foreign exchange market. 
D) the interaction of the demand for and supply of dollar-denominated assets in the stock market.

Question 16

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively.   At an exchange rate of $2.50 per pound, there is an:

Accepted Answer

A) excess demand for 1 million pounds. 
B) excess supply of 1 million pounds. 
C) excess demand for 0.5 million pounds. 
D) excess supply of 0.5 million pounds. 
A) excess demand for 1 million pounds. 
B) excess supply of 1 million pounds. 
C) excess demand for 0.5 million pounds. 
D) excess supply of 0.5 million pounds.

Question 17

Under the floating exchange rate system, a fall in the market price of a currency is called:

Accepted Answer

A) devaluation. 
B) depreciation. 
C) appreciation. 
D) revaluation. 
A) devaluation. 
B) depreciation. 
C) appreciation. 
D) revaluation.

Question 18

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively.   A downward movement along the vertical axis would correspond to a(n) _____ of the U.S. dollar.

Accepted Answer

A) arbitrage 
B) swap 
C) appreciation 
D) depreciation 
A) arbitrage 
B) swap 
C) appreciation 
D) depreciation

Question 19

Greece was among the 11 EU countries deemed to meet the five criteria in early 1998.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is true of foreign exchange markets?

Accepted Answer

A) The foreign exchange market is a single gathering place where traders shout buy and sell orders at each other. 
B) Individuals' exchanges of currencies comprise the largest portion of overall foreign exchange trading. 
C) The laws of demand and supply are not applicable in a foreign exchange market. 
D) Most foreign exchange trading involves the exchange of U.S.dollars for other currencies. 
A) The foreign exchange market is a single gathering place where traders shout buy and sell orders at each other. 
B) Individuals' exchanges of currencies comprise the largest portion of overall foreign exchange trading. 
C) The laws of demand and supply are not applicable in a foreign exchange market. 
D) Most foreign exchange trading involves the exchange of U.S.dollars for other currencies.

Exam 17: The Foreign Exchange Market

Most foreign exchange trading is done among the banks themselves in the retail part of the foreign exchange market.

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively. If the U.S. Federal Reserve uses a contractionary monetary policy, the _____ curve would shift right and the pound would tend to _____.

The U.S. dollar is called a _____ because it is often used as an intermediary to accomplish trading between two other currencies.

Which of the following refers to foreign exchange?

Under a floating exchange rate system, the value of the dollar per euro exchange rate rises when:

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively. Who among the following groups will most likely benefit if the exchange rate is pegged at $2.50 per pound?

To maintain an undervalued currency, the country's monetary authorities must intervene in the foreign exchange market to buy its currency in the foreign exchange market.

The exchange rate set for an immediate trade is often referred to as a:

Arbitrage ensures that the spot price of the currency will equal the forward price of the currency.

The spot exchange rate is the current price for an exchange that will take place a month or more in the future.

How can one profit through arbitrage if the dollar per euro exchange rate in London is $2 per pound while in New York is $1.95 per pound?

Government officials wanting to defend a fixed exchange rate may not have sufficient reserves of foreign currency to keep the price fixed indefinitely.

In a floating exchange rate system, the dollar per pound exchange rate is determined by:

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively. At an exchange rate of $2.50 per pound, there is an:

Under the floating exchange rate system, a fall in the market price of a currency is called:

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively. A downward movement along the vertical axis would correspond to a(n) _____ of the U.S. dollar.

Greece was among the 11 EU countries deemed to meet the five criteria in early 1998.

Which of the following is true of foreign exchange markets?

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

The figure given below illustrates the market for British pounds. D_£ and S_£ are the demand and supply curves of the British pounds respectively. If the U.S. Federal Reserve uses a contractionary monetary policy, the _ curve would shift right and the pound would tend to _.

The figure given below illustrates the market for British pounds. D_£ and S_£ are the demand and supply curves of the British pounds respectively. Who among the following groups will most likely benefit if the exchange rate is pegged at $2.50 per pound?

The figure given below illustrates the market for British pounds. D_£ and S_£ are the demand and supply curves of the British pounds respectively. At an exchange rate of $2.50 per pound, there is an:

The figure given below illustrates the market for British pounds. D_£ and S_£ are the demand and supply curves of the British pounds respectively. A downward movement along the vertical axis would correspond to a(n) _____ of the U.S. dollar.