Exam 6: Currency and Foreign Exchange

Linda wants to sell U.S. dollars and buy Noan currencies, currency of the country of Noansia. The spot exchange rate is 1,170 Noan to the dollar; hence, Linda is unlikely to sell her U.S. dollars at this rate. The bank offers Linda 1,150 Noan for each dollar she sells. However, if Linda plans to sell Noan currencies to buy U.S. dollars, the bank will charge her 1,190 Noan for each dollar she purchases. In this scenario, the 20 Noan difference between the spot exchange rate and the rate that the bank offers Linda is referred to as the _____.

North Korea is considered a poor candidate for a strong and widely traded currency. This is because of:

The nation of Dholabha is experiencing a widespread drop in its spending. Hence, it has been declared as a nation going through a phase of recession. The people of Dholabha are dealing with reduced levels of employment, which is adversely affecting the economic growth of the nation. In this scenario, when Dholabha begins to thrive again and the gross domestic product (GDP) of the nation increases, _____.

In the context of managing exchange rate risks, which of the following statements is true of an option?

In contrast to overvalued currencies, undervalued currencies:

Jim, an independent trader, conducts his business transactions using digital forms of money that are not regulated by any national government. Jim uses this digital means of exchange with his trading partners as well. In this scenario, Jim uses currencies known as _____.

Taverna is a manufacturing-dependent nation. The Taverna government plans to increase the supply of the national currency by a major proportion in an effort to devalue the currency in international markets. In this scenario, the Tavernan government prefers to have its currency undervalued in an effort to:

In the context of money, unlike fiat currencies, cryptocurrencies:

During the 1950s, Ghajna, a developing nation, used currency whose value was determined based on the value of gold. People in Ghajna could present currency worth of 10 Gaj, Gaj being the currency of Ghajna, to a government-approved bank and receive 10 Gaj worth of gold in return. The nation used gold as the base to value its currency. In this scenario, we can say that the nation of Ghajna had the _____ in place during the 1950s.

NBC Uro Corp. is a large U.S. company that earns almost 70 percent of its revenue from foreign markets. When forecasting operations for the next few years, the company factors in a slow decline of the U.S. dollar in comparison to other leading global currencies. However, if instead of declining, the U.S dollar appreciates in the years ahead, this would mean that NBC Uro Corp faces a(n) _____.

The nation of Gregoran wants to purchase liquefied petroleum gas and diesel fuel from oil refineries based in the nation of Frodaria. Since Gregoran's currency is overvalued, Gregoran swaps its currency with the currency of Frodaria. In this scenario, the nation of Gregoran engages in:

The country of Ethandan witnesses a major economic growth in its current financial year as a result of a major breakthrough by the nation's scientists in the field of nanotechnology. The economic growth leads to an increase in the value of the nation's currency relative to that of other nations'. In the context of the foreign exchange market, the increase in the value of Ethandan's currency is referred to as _____.

In the context of foreign exchange rates, which of the following scenarios exemplifies dollarization?

SafestMoney is a commercial bank that is involved in foreign exchange trade. In addition to conducting trade on behalf of its customers and itself, it provides trading channels for other participants. SafestMoney makes money by charging a _____ on the exchange, which is the difference between the buy and sell price for a currency.

The fluctuation of exchange rates is a significant risk factor for Sedantha Inc., a company based in Velezland that imports miniature grape vines from the country of Highlands. The company usually purchases these vines during early fall and decides to pay for them after a few months. This could be termed as a risky exchange because the true cost of the vines can swing dramatically with currency shifts. In this scenario, Sedantha Inc. can eliminate currency risk by using _____ to lock in an exchange rate.

In the context of managing exchange rate risks, which of the following statements is true of forward exchange rate transactions?

In the context of managing exchange rate risks, when companies take advantage of spot exchange rates, they:

The country of Jolania faced a major political instability when the nation's government implemented new trade laws that hurt investment opportunities for several industries. Companies doing business in Jolania feared an economic disaster, and moved their money to safer countries. Many sold their Jolanian currency to purchase other stable currencies. This resulted in the _____ of the Jolanian currency.

Although Sinthland is a manufacturing-dependent nation, it prefers to have an overvalued currency. Which of the following is most likely a reason why Sinthland would want an overvalued domestic currency?

Briefly explain the reasons behind some countries preferring to have an overvalued currency.