Question 1

The primary use of a currency exchange is to:

Accepted Answer

A)  Make profits when exchange rates change 
B)  Foster greater international cooperation between countries 
C)  Market domestic products to overseas consumers 
D)  Facilitate the purchase/sale of international goods and services 
A)  Make profits when exchange rates change 
B)  Foster greater international cooperation between countries 
C)  Market domestic products to overseas consumers 
D)  Facilitate the purchase/sale of international goods and services D

Question 2

According to the interest parity condition, the expected domestic rate of return is:

Accepted Answer

A)  The foreign interest rate 
B)  The percentage change in the expected exchange rate compared to the actual exchange rate 
C)  The domestic interest rate 
D)  The foreign interest rate plus the expected rate of depreciation 
A)  The foreign interest rate 
B)  The percentage change in the expected exchange rate compared to the actual exchange rate 
C)  The domestic interest rate 
D)  The foreign interest rate plus the expected rate of depreciation C

Question 3

Which of the following contracts allows firms with international transactions to hedge against exchange rate risk?

Accepted Answer

A)  Asset-backed securities 
B)  Cryptocurrencies 
C)  Forward contracts 
D)  Spot deals 
A)  Asset-backed securities 
B)  Cryptocurrencies 
C)  Forward contracts 
D)  Spot deals C

Question 4

Suppose the exchange rate is $1 to 0.8 euros today, and tomorrow becomes $1 to 0.9 euros. Which of these describes what happened?

Accepted Answer

A)  The dollar depreciated relative to the euro 
B)  The dollar appreciated relative to the euro 
C)  The euro appreciated relative to the dollar 
D)  The dollar lost value comparatively to the euro 
A)  The dollar depreciated relative to the euro 
B)  The dollar appreciated relative to the euro 
C)  The euro appreciated relative to the dollar 
D)  The dollar lost value comparatively to the euro

Question 5

Suppose the foreign interest rate rises. Other things equal, what happens to the domestic currency?

Accepted Answer

A)  Nothing 
B)  It strengthens 
C)  It appreciates 
D)  It depreciates 
A)  Nothing 
B)  It strengthens 
C)  It appreciates 
D)  It depreciates

Question 6

If the price level goes up in country 1 by the same rate it increases in country 2, what happens to the exchange rate according to PPP?

Accepted Answer

A)  There is no change 
B)  Country 1's exchange rate depreciates 
C)  Country 2's exchange rate depreciates 
D)  PPP cannot tell us what happens to the exchange rate 
A)  There is no change 
B)  Country 1's exchange rate depreciates 
C)  Country 2's exchange rate depreciates 
D)  PPP cannot tell us what happens to the exchange rate

Question 7

Which of the following is not a requirement for countries to constitute an optimum currency area?

Accepted Answer

A)  Similar constitutional rights 
B)  High volume of trade 
C)  High scope of trade 
D)  Mobile factors of production 
A)  Similar constitutional rights 
B)  High volume of trade 
C)  High scope of trade 
D)  Mobile factors of production

Question 8

At 2.35pm on January 1st 2022, $1 trades for 0.7 British pounds. This is an example of a ____ exchange rate

Accepted Answer

A)  Spot 
B)  Future 
C)  Forward 
D)  Forecasted 
A)  Spot 
B)  Future 
C)  Forward 
D)  Forecasted

Question 9

Which of the following accounts for the largest volume of foreign exchange transactions?

Accepted Answer

A)  Institutional investors 
B)  Private traders 
C)  Commercial banks 
D)  Central banks 
A)  Institutional investors 
B)  Private traders 
C)  Commercial banks 
D)  Central banks

Question 10

Which of the following is not a reason why PPP often fails to hold in real world data?

Accepted Answer

A)  Transport costs 
B)  Different taxes 
C)  Trade barriers 
D)  A lack of traders wishing to exploit arbitrage 
A)  Transport costs 
B)  Different taxes 
C)  Trade barriers 
D)  A lack of traders wishing to exploit arbitrage

The primary use of a currency exchange is to:

According to the interest parity condition, the expected domestic rate of return is:

Which of the following contracts allows firms with international transactions to hedge against exchange rate risk?

Suppose the exchange rate is $1 to 0.8 euros today, and tomorrow becomes $1 to 0.9 euros. Which of these describes what happened?

Suppose the foreign interest rate rises. Other things equal, what happens to the domestic currency?

If the price level goes up in country 1 by the same rate it increases in country 2, what happens to the exchange rate according to PPP?

Which of the following is not a requirement for countries to constitute an optimum currency area?

At 2.35pm on January 1st 2022, $1 trades for 0.7 British pounds. This is an example of a ____ exchange rate

Which of the following accounts for the largest volume of foreign exchange transactions?

Which of the following is not a reason why PPP often fails to hold in real world data?

Confidence, Monetary Policy, and Fiscal Policy

Basic Accounting and Financial Statements

Relationship of the Federal Reserve Bank and the US Treasury Department

The Truth Behind Money Creation

Money, Banking, and the Real Economy

Monetary Sterilization in China

World Reserve Currency

Real Estate

Oil

Gold

Cryptocurrencies

Filters

Exam 6: Global Monetary Linkage

The primary use of a currency exchange is to:

According to the interest parity condition, the expected domestic rate of return is:

Which of the following contracts allows firms with international transactions to hedge against exchange rate risk?

Suppose the exchange rate is $1 to 0.8 euros today, and tomorrow becomes $1 to 0.9 euros. Which of these describes what happened?

Suppose the foreign interest rate rises. Other things equal, what happens to the domestic currency?

If the price level goes up in country 1 by the same rate it increases in country 2, what happens to the exchange rate according to PPP?

Which of the following is not a requirement for countries to constitute an optimum currency area?

At 2.35pm on January 1st 2022, $1 trades for 0.7 British pounds. This is an example of a ____ exchange rate

Which of the following accounts for the largest volume of foreign exchange transactions?

Which of the following is not a reason why PPP often fails to hold in real world data?

Confidence, Monetary Policy, and Fiscal Policy

Basic Accounting and Financial Statements

Relationship of the Federal Reserve Bank and the US Treasury Department

The Truth Behind Money Creation

Money, Banking, and the Real Economy

Monetary Sterilization in China

World Reserve Currency

Real Estate

Oil

Gold

Cryptocurrencies

Filters