Question 1

In the Brokers market, a broker reveals the names of the banks making bids or offers to the trading banks before the trade has been agreed upon.

Accepted Answer

A) True 
 B)False  False

Question 2

The size of the spread that a dealer will quote for a foreign exchange transaction will vary depending on

Accepted Answer

A)  the degree of market volatility at the time. 
B)  the degree of risk associated with a particular currency. 
C)  the size of the market for the currency being traded. 
D)  All of above. 
A)  the degree of market volatility at the time. 
B)  the degree of risk associated with a particular currency. 
C)  the size of the market for the currency being traded. 
D)  All of above. D

Question 3

Which of the following is not true regarding "exchange rate indexes?"

Accepted Answer

A)  They will all show the same general trends (i.e., appreciation or depreciation). 
B)  Neither economic theory nor practice gives a clear indication of which exchange rate is best. 
C)  For short-term movements, there can be large differences across exchange rate indexes. 
D)  Exchange rate indexes are used to measure the average value of a currency relative to several other currencies. 
A)  They will all show the same general trends (i.e., appreciation or depreciation). 
B)  Neither economic theory nor practice gives a clear indication of which exchange rate is best. 
C)  For short-term movements, there can be large differences across exchange rate indexes. 
D)  Exchange rate indexes are used to measure the average value of a currency relative to several other currencies. C

Question 4

Why is it true that exchange rates tend to be equal worldwide? Briefly explain.

Accepted Answer

Explain that arbitrage would r

Question 5

The European option can only be exercised on the final day, the expiration date.

Accepted Answer

A) True 
 B)False

Question 6

Speculation is the opposite of hedging.

Accepted Answer

A) True 
 B)False

Question 7

A gain can be made by the holder of a call option when the current exchange rate

Accepted Answer

A)  exceeds the exercise price. 
B)  exceeds the forward price. 
C)  is less than the futures price. 
D)  falls to zero. 
A)  exceeds the exercise price. 
B)  exceeds the forward price. 
C)  is less than the futures price. 
D)  falls to zero.

Question 8

An increase in the exchange rate from $2.00 = 1 € to $2.20 = 1 € is a

Accepted Answer

A)  10% depreciation of the euro with respect to the dollar. 
B)  10% depreciation of the dollar with respect to the euro. 
C)  10% appreciation of the dollar with respect to the euro. 
D)  None of the above. 
A)  10% depreciation of the euro with respect to the dollar. 
B)  10% depreciation of the dollar with respect to the euro. 
C)  10% appreciation of the dollar with respect to the euro. 
D)  None of the above.

Question 9

The euro is said to be selling at a if the spot dollar price is $1.18 and the nine- month forward rate is $1.16.

Accepted Answer

A)  forward discount 
B)  forward premium 
C)  forward spread 
D)  none of the above 
A)  forward discount 
B)  forward premium 
C)  forward spread 
D)  none of the above

Question 10

The most common tool of analysis in international finance for measuring the average value of a currency relative to several other currencies is

Accepted Answer

A)  bilateral exchange rates. 
B)  cross exchange rates. 
C)  exchange rate indexes. 
D)  All of above. 
A)  bilateral exchange rates. 
B)  cross exchange rates. 
C)  exchange rate indexes. 
D)  All of above.

Question 11

There is no limit for domestic central bank intervention.

Accepted Answer

A) True 
 B)False

Question 12

The rate represents the difference between the spot and forward price.

Accepted Answer

A)  profit 
B)  swap 
C)  spread 
D)  risk 
A)  profit 
B)  swap 
C)  spread 
D)  risk

Question 13

Foreign exchange activity is dominated by the spot and swaps markets.

Accepted Answer

A) True 
 B)False

Question 14

An important feature of a is that the holder has the right, but not the obligation, to buy or sell currency.

Accepted Answer

A)  swap 
B)  foreign exchange arbitrage 
C)  foreign exchange option 
D)  futures market contract 
A)  swap 
B)  foreign exchange arbitrage 
C)  foreign exchange option 
D)  futures market contract

Question 15

The difference between bid (buying) rates and ask (selling) rates is called the

Accepted Answer

A)  profit. 
B)  arbitrage. 
C)  spread. 
D)  forward transaction. 
A)  profit. 
B)  arbitrage. 
C)  spread. 
D)  forward transaction.

Question 16

The U.S. and the Canadian currencies are the only two in the world that are called "dollars."

Accepted Answer

A) True 
 B)False

Question 17

Suppose in London £/$ = 0.5 while in New York £/SF = 0.2. The corresponding cross rate (SF/$) is

Accepted Answer

A)  2.5. 
B)  0.1. 
C)  0.4. 
D)  0.3. 
A)  2.5. 
B)  0.1. 
C)  0.4. 
D)  0.3.

Question 18

Riskless transactions to take advantage of profit opportunities due to a price differential or a yield differential in excess of transaction costs are called

Accepted Answer

A)  differential actions. 
B)  cash transactions. 
C)  arbitrage. 
D)  forward transactions. 
A)  differential actions. 
B)  cash transactions. 
C)  arbitrage. 
D)  forward transactions.

Question 19

If the bank is selling euros for $0.89, then what is the implied euro price of the dollar?

Accepted Answer

A)  2.0 
B)  1.999 
C)  2.323 
D)  1.123 
A)  2.0 
B)  1.999 
C)  2.323 
D)  1.123

Question 20

If one dollar buys 10 pesos, then one peso buys ten cents of a dollar.

Accepted Answer

A) True 
 B)False

Exam 13: The Foreign-Exchange Market

In the Brokers market, a broker reveals the names of the banks making bids or offers to the trading banks before the trade has been agreed upon.

The size of the spread that a dealer will quote for a foreign exchange transaction will vary depending on

Which of the following is not true regarding "exchange rate indexes?"

Why is it true that exchange rates tend to be equal worldwide? Briefly explain.

The European option can only be exercised on the final day, the expiration date.

Speculation is the opposite of hedging.

A gain can be made by the holder of a call option when the current exchange rate

An increase in the exchange rate from $2.00 = 1 € to $2.20 = 1 € is a

The euro is said to be selling at a if the spot dollar price is $1.18 and the nine- month forward rate is $1.16.

The most common tool of analysis in international finance for measuring the average value of a currency relative to several other currencies is

There is no limit for domestic central bank intervention.

The rate represents the difference between the spot and forward price.

Foreign exchange activity is dominated by the spot and swaps markets.

An important feature of a is that the holder has the right, but not the obligation, to buy or sell currency.

The difference between bid (buying) rates and ask (selling) rates is called the

The U.S. and the Canadian currencies are the only two in the world that are called "dollars."

Suppose in London £/$ = 0.5 while in New York £/SF = 0.2. The corresponding cross rate (SF/$) is

Riskless transactions to take advantage of profit opportunities due to a price differential or a yield differential in excess of transaction costs are called

If the bank is selling euros for $0.89, then what is the implied euro price of the dollar?

If one dollar buys 10 pesos, then one peso buys ten cents of a dollar.

An Introduction to International Trade

Tools of Analysis for International Trade Models

The Classical Model of International Trade

The Heckscher-Ohlin Theory

Tests of Trade Models: the Leontief Paradox and Its After-math

Tariffs

Nontariff Barriers and Arguments for Protection

Commercial Policy: History and Practice

Preferential Trade Arrangements

International Trade and Economic Growth

An Introduction to International Finance

The Balance of Payments

Prices and Exchange Rates: Purchasing Power Parity

Exchange Rates, Interest Rates, and Interest Parity

Foreign-Exchange Risk, Forecasting, and International Investment

Basic Theories of the Balance of Payments

Exchange Rate Theories

Alternative International Monetary Standards

International Banking, Debt, and Risk

Open-Economy Macroeconomic Policy and Adjustment

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