Question 1

Major exceptions to using European terms in foreign exchange include

Accepted Answer

A)  trading yen and euros. 
B)  pounds and euros. 
C)  Mexican Pesos and euros. 
D)  all of the above. 
A)  trading yen and euros. 
B)  pounds and euros. 
C)  Mexican Pesos and euros. 
D)  all of the above.

Question 2

A ________ transaction in the foreign exchange market requires an almost immediate delivery of foreign exchange.

Accepted Answer

A)  spot 
B)  forward 
C)  futures 
D)  none of the above 
A)  spot 
B)  forward 
C)  futures 
D)  none of the above

Question 3

Dealers sometimes use brokers in the foreign exchange market because the dealers desire

Accepted Answer

A)  speed. 
B)  accuracy. 
C)  to remain anonymous. 
D)  all of the above. 
A)  speed. 
B)  accuracy. 
C)  to remain anonymous. 
D)  all of the above.

Question 4

A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.

Accepted Answer

A)  "forward against spot" 
B)  "forspot" 
C)  "repurchase agreement" 
D)  "spot against forward" 
A)  "forward against spot" 
B)  "forspot" 
C)  "repurchase agreement" 
D)  "spot against forward"

Question 5

Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase.

Accepted Answer

A)  central banks; treasuries 
B)  dealers; brokers 
C)  brokers; dealers 
D)  speculators; arbitragers 
A)  central banks; treasuries 
B)  dealers; brokers 
C)  brokers; dealers 
D)  speculators; arbitragers

Question 6

A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date.

Accepted Answer

A)  spot 
B)  forward 
C)  swap 
D)  currency 
A)  spot 
B)  forward 
C)  swap 
D)  currency

Question 7

________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction.

Accepted Answer

A)  Speculators and arbitragers 
B)  Foreign exchange brokers 
C)  Central banks 
D)  Treasuries 
A)  Speculators and arbitragers 
B)  Foreign exchange brokers 
C)  Central banks 
D)  Treasuries

Question 8

________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.

Accepted Answer

A)  Dealers; ask; bid 
B)  Dealers; bid; ask 
C)  Brokers; ask; bid 
D)  Brokers; bid; ask 
A)  Dealers; ask; bid 
B)  Dealers; bid; ask 
C)  Brokers; ask; bid 
D)  Brokers; bid; ask

Question 9

The four currencies that constitute about 80% of all foreign exchange trading are

Accepted Answer

A)  U.K pound, Chinese yuan, euro, and Japanese yen. 
B)  U.S. dollar, euro, Chinese yuan, and U.K. pound. 
C)  U.S. dollar, Japanese yen, euro, and U.K. pound. 
D)  U.S. dollar, U.K. pound, yen, and Chinese yuan. 
A)  U.K pound, Chinese yuan, euro, and Japanese yen. 
B)  U.S. dollar, euro, Chinese yuan, and U.K. pound. 
C)  U.S. dollar, Japanese yen, euro, and U.K. pound. 
D)  U.S. dollar, U.K. pound, yen, and Chinese yuan.

Question 10

The article in the text about an intern's first day on the job as a currency trader relates how what he/she had learned in business school had very little to do with how trading decisions were made on the floor of the exchange.

Accepted Answer

A) True 
 B)False

Question 11

Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.

Accepted Answer

Spot transactions are exchanging one cur

Question 12

It is characteristic of foreign exchange dealers to

Accepted Answer

A)  bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale. 
B)  act as market makers, willing to buy and sell the currencies in which they specialize. 
C)  trade only with clients in the retail market and never operate in the wholesale market for foreign exchange. 
D)  All of the above are characteristics of foreign exchange dealers. 
A)  bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale. 
B)  act as market makers, willing to buy and sell the currencies in which they specialize. 
C)  trade only with clients in the retail market and never operate in the wholesale market for foreign exchange. 
D)  All of the above are characteristics of foreign exchange dealers.

Question 13

For arbitrage opportunities to be practical,

Accepted Answer

A)  participants must have instant access to quotes. 
B)  participants must have instant access to executions. 
C)  bank traders must be able to execute the arbitrage trades without an initial sum of money relying on their bank's credit standing. 
D)  all of the above must be true. 
A)  participants must have instant access to quotes. 
B)  participants must have instant access to executions. 
C)  bank traders must be able to execute the arbitrage trades without an initial sum of money relying on their bank's credit standing. 
D)  all of the above must be true.

Question 14

Given the following pair wise exchange rates, estimate the cross-rate of pounds per euro.
$0)8410/£ $1.2223/euro

Accepted Answer

A)  £1.000/euro 
B)  £1.5062/euro 
C)  £0.6639/euro 
D)  euro 1.5062/£ 
A)  £1.000/euro 
B)  £1.5062/euro 
C)  £0.6639/euro 
D)  euro 1.5062/£

Question 15

TABLE 6.1
Use the table to answer following question(s).
  
-Refer to Table 6.1. Cross rates

Accepted Answer

A)  are often reported in the form of a matrix in the financial newspapers. 
B)  can be used to check on opportunities for intermarket arbitrage. 
C)  for the spot market in the table are ⁵188.10/³ (using the mid rates). 
D)  are all of the above. 
A)  are often reported in the form of a matrix in the financial newspapers. 
B)  can be used to check on opportunities for intermarket arbitrage. 
C)  for the spot market in the table are ⁵188.10/³ (using the mid rates). 
D)  are all of the above.

Question 16

Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market?

Accepted Answer

A)  The transfer of purchasing power between countries. 
B)  Obtaining or providing credit for international trade transactions. 
C)  Minimizing the risks of exchange rate changes. 
D)  All of the above were identified as functions of the foreign exchange market. 
A)  The transfer of purchasing power between countries. 
B)  Obtaining or providing credit for international trade transactions. 
C)  Minimizing the risks of exchange rate changes. 
D)  All of the above were identified as functions of the foreign exchange market.

Question 17

Foreign exchange swaps were larger in 1998 than in 2001. The Bank for International Settlements attributes this to

Accepted Answer

A)  the introduction of the euro. 
B)  growing electronic brokering in the spot interbank market. 
C)  consolidation in general. 
D)  all of the above. 
A)  the introduction of the euro. 
B)  growing electronic brokering in the spot interbank market. 
C)  consolidation in general. 
D)  all of the above.

Question 18

Daily trading volume in the foreign exchange market was about ________ per ________ in 2007.

Accepted Answer

A)  $3,200 billion; month 
B)  $1,000 billion; month 
C)  $3,200 billion; day 
D)  $1,000 billion; day 
A)  $3,200 billion; month 
B)  $1,000 billion; month 
C)  $3,200 billion; day 
D)  $1,000 billion; day

Question 19

Swap and forward transactions account for an insignificant portion of the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 20

Global daily foreign exchange turnover (combined swaps, spot, and forward transactions) has declined from roughly $1,500 billion in 2001, to $1,200 in 2004, to $1,000 in 2007.

Accepted Answer

A) True 
 B)False

Exam 5: The Foreign Exchange Market

Major exceptions to using European terms in foreign exchange include

A ________ transaction in the foreign exchange market requires an almost immediate delivery of foreign exchange.

Dealers sometimes use brokers in the foreign exchange market because the dealers desire

A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.

Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase.

A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date.

________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction.

________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.

The four currencies that constitute about 80% of all foreign exchange trading are

The article in the text about an intern's first day on the job as a currency trader relates how what he/she had learned in business school had very little to do with how trading decisions were made on the floor of the exchange.

Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.

It is characteristic of foreign exchange dealers to

For arbitrage opportunities to be practical,

Given the following pair wise exchange rates, estimate the cross-rate of pounds per euro. $0)8410/£ $1.2223/euro

TABLE 6.1 Use the table to answer following question(s). -Refer to Table 6.1. Cross rates

Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market?

Foreign exchange swaps were larger in 1998 than in 2001. The Bank for International Settlements attributes this to

Daily trading volume in the foreign exchange market was about ________ per ________ in 2007.

Swap and forward transactions account for an insignificant portion of the foreign exchange market.

Global daily foreign exchange turnover (combined swaps, spot, and forward transactions) has declined from roughly $1,500 billion in 2001, to $1,200 in 2004, to $1,000 in 2007.

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters

Foreign exchange earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange , on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase.

make money on currency exchanges by the difference between the price, or the price they offer to pay, and the price, or the price at which they offer to sell the currency.

Daily trading volume in the foreign exchange market was about per in 2007.