Question 1

An investor can write any size contract in both forward and futures markets as long as the other party involved is in agreement.

Accepted Answer

A) True 
 B)False

Question 2

A European option differs from an American option in that it may be exercised

Accepted Answer

A)  only on the spot date. 
B)  only on the expiration date. 
C)  only on the future date. 
D)  on any date. 
A)  only on the spot date. 
B)  only on the expiration date. 
C)  only on the future date. 
D)  on any date.

Question 3

Exchange rates (for instance, the dollar price of yen) tend to be different worldwide at any point in time because of different tastes for currencies in each country.

Accepted Answer

A) True 
 B)False

Question 4

In swap transactions, the trader is interested in

Accepted Answer

A)  the difference between spot and forward rates. 
B)  only the spot rate. 
C)  only the forward rate. 
D)  both the spot and deposit interest rate. 
A)  the difference between spot and forward rates. 
B)  only the spot rate. 
C)  only the forward rate. 
D)  both the spot and deposit interest rate.

Question 5

The market where currencies may be bought and sold for delivery in a future period is known as

Accepted Answer

A)  the forward exchange market. 
B)  the spot exchange market. 
C)  the purchasing power market. 
D)  the futuristic exchange market. 
A)  the forward exchange market. 
B)  the spot exchange market. 
C)  the purchasing power market. 
D)  the futuristic exchange market.

Question 6

Because of the threat of arbitrage, the forward rate must equal the spot rate at all times.

Accepted Answer

A) True 
 B)False

Question 7

Central banks intervene in the foreign exchange market

Accepted Answer

A)  to smooth out currency fluctuations. 
B)  to facilitate the transfer of goods and services internationally. 
C)  to conduct foreign exchange operations for central governments. 
D)  All of the above. 
A)  to smooth out currency fluctuations. 
B)  to facilitate the transfer of goods and services internationally. 
C)  to conduct foreign exchange operations for central governments. 
D)  All of the above.

Question 8

If the spot exchange rate between dollars and pounds is equal to 2 dollars for one pound and the forward exchange rate equals 2.10 dollars for one pound, then

Accepted Answer

A)  the dollar is trading at a forward premium. 
B)  the pound is trading at a forward discount. 
C)  the pound is trading at a forward premium. 
D)  the market presents an opportunity for arbitrage. 
A)  the dollar is trading at a forward premium. 
B)  the pound is trading at a forward discount. 
C)  the pound is trading at a forward premium. 
D)  the market presents an opportunity for arbitrage.

Question 9

In the case of an appreciating domestic currency, central banks often sell foreign currencies in exchange for domestic currency to stop the appreciation.

Accepted Answer

A) True 
 B)False

Question 10

In the case where the spot and forward rates are equal, the currency is said to be selling.

Accepted Answer

A)  profitably. 
B)  flat. 
C)  normal. 
D)  risky. 
A)  profitably. 
B)  flat. 
C)  normal. 
D)  risky.

Question 11

The exchange rate is kept the same across geographically-separate markets by

Accepted Answer

A)  hedging. 
B)  speculation. 
C)  government regulation. 
D)  arbitrage. 
A)  hedging. 
B)  speculation. 
C)  government regulation. 
D)  arbitrage.

Question 12

A is a transaction in which both a spot transaction and a forward transaction are agreed upon simultaneously.

Accepted Answer

A)  arbitrage 
B)  call 
C)  swap 
D)  put 
A)  arbitrage 
B)  call 
C)  swap 
D)  put

Question 13

Suppose that in the free market, where the supply of the foreign currency is equal to demand for that currency, the peso-dollar exchange rate is 4 pesos = $1. Assume the central bank sets an official exchange rate at 3 pesos = $1, we can say that in the official market the dollar is

Accepted Answer

A)  overvalued. 
B)  undervalued. 
C)  appreciated. 
D)  None of the above. 
A)  overvalued. 
B)  undervalued. 
C)  appreciated. 
D)  None of the above.

Question 14

The most common type of transaction in the foreign exchange market is a

Accepted Answer

A)  forward transaction. 
B)  spot transaction. 
C)  swap transaction. 
D)  None of the above. 
A)  forward transaction. 
B)  spot transaction. 
C)  swap transaction. 
D)  None of the above.

Question 15

In general, the lower the exercise price relative to the current spot rate price of the currency, the more valuable

Accepted Answer

A)  the put option. 
B)  the call option. 
C)  the arbitrage operation. 
D)  the triangular arbitrage. 
A)  the put option. 
B)  the call option. 
C)  the arbitrage operation. 
D)  the triangular arbitrage.

Question 16

The essential feature of a is that it immediately fixes the rate at which a specified amount of one currency is to be delivered in exchange for a specific amount of another at a future date.

Accepted Answer

A)  forward contract 
B)  spot contract 
C)  money contract 
D)  bid contract 
A)  forward contract 
B)  spot contract 
C)  money contract 
D)  bid contract

Question 17

Both a parallel market and a black market are free markets permitted to coexist with the official market.

Accepted Answer

A) True 
 B)False

Question 18

Today's forward rate will equal the future spot rate.

Accepted Answer

A) True 
 B)False

Question 19

If a foreign exchange speculator expects the spot rate of the dollar nine months from today to be lower than today's forward rate on the dollar for delivery in nine months, she may

Accepted Answer

A)  buy dollars in the spot market nine months from today. 
B)  sell dollars in the spot market nine months from today. 
C)  sell dollars forward today and buy them in the spot market nine months from today. 
D)  buy dollars forward today and resell them in the spot market nine months from today. 
A)  buy dollars in the spot market nine months from today. 
B)  sell dollars in the spot market nine months from today. 
C)  sell dollars forward today and buy them in the spot market nine months from today. 
D)  buy dollars forward today and resell them in the spot market nine months from today.

Question 20

The reduction or covering of a foreign exchange risk is called

Accepted Answer

A)  hedging. 
B)  speculation. 
C)  intervention. 
D)  arbitrage. 
A)  hedging. 
B)  speculation. 
C)  intervention. 
D)  arbitrage.

Exam 13: The Foreign-Exchange Market

An investor can write any size contract in both forward and futures markets as long as the other party involved is in agreement.

A European option differs from an American option in that it may be exercised

Exchange rates (for instance, the dollar price of yen) tend to be different worldwide at any point in time because of different tastes for currencies in each country.

In swap transactions, the trader is interested in

The market where currencies may be bought and sold for delivery in a future period is known as

Because of the threat of arbitrage, the forward rate must equal the spot rate at all times.

Central banks intervene in the foreign exchange market

If the spot exchange rate between dollars and pounds is equal to 2 dollars for one pound and the forward exchange rate equals 2.10 dollars for one pound, then

In the case of an appreciating domestic currency, central banks often sell foreign currencies in exchange for domestic currency to stop the appreciation.

In the case where the spot and forward rates are equal, the currency is said to be selling.

The exchange rate is kept the same across geographically-separate markets by

A is a transaction in which both a spot transaction and a forward transaction are agreed upon simultaneously.

Suppose that in the free market, where the supply of the foreign currency is equal to demand for that currency, the peso-dollar exchange rate is 4 pesos = $1. Assume the central bank sets an official exchange rate at 3 pesos = $1, we can say that in the official market the dollar is

The most common type of transaction in the foreign exchange market is a

In general, the lower the exercise price relative to the current spot rate price of the currency, the more valuable

The essential feature of a is that it immediately fixes the rate at which a specified amount of one currency is to be delivered in exchange for a specific amount of another at a future date.

Both a parallel market and a black market are free markets permitted to coexist with the official market.

Today's forward rate will equal the future spot rate.

If a foreign exchange speculator expects the spot rate of the dollar nine months from today to be lower than today's forward rate on the dollar for delivery in nine months, she may

The reduction or covering of a foreign exchange risk is called

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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