Question 1

What happens in the foreign exchange market does not directly impact the sales, profits, and strategy of a multinational enterprise.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is a reason for London's dominance in the foreign exchange market?

Accepted Answer

A) Great Britain's decision to retain the British pound instead of using the euro 
B) The preeminence of Financial Times Stock Exchange (FTS
E)  index as an economic health indicator 
C) London's location making it the link between the East Asian and New York markets 
D) London being the preferred headquarters destination for major multinational corporations 
E) London's trading centers opening soon after Tokyo's and New York's trading centers closing for the night 
A) Great Britain's decision to retain the British pound instead of using the euro 
B) The preeminence of Financial Times Stock Exchange (FTS
E)  index as an economic health indicator 
C) London's location making it the link between the East Asian and New York markets 
D) London being the preferred headquarters destination for major multinational corporations 
E) London's trading centers opening soon after Tokyo's and New York's trading centers closing for the night

Question 3

A U.S. company that imports laptop computers from Japan knows that in 30 days it must pay in yen to a Japanese supplier when a shipment arrives. The company will pay the Japanese supplier ×150,000 for each computer, and the current dollar/yen spot exchange rate is $1 = ×110. The importer can sell the computers the day they arrive for $1,600 each. However, the importer will not have the funds to pay the Japanese supplier until the computers have been sold. The importer enters into a 30-day forward exchange transaction with a foreign exchange dealer at $1 = ×105. Which of the following will happen if the exchange rate after 30 days is $1 = ×90?

Accepted Answer

A) The importer will earn a profit of approximately $236 per computer. 
B) The importer will earn a profit of approximately $171 per computer. 
C) The importer will earn a profit of approximately $65 per computer. 
D) The importer will incur a loss of approximately $67 per computer. 
E) The importer will incur a loss of approximately $105 per computer. 
A) The importer will earn a profit of approximately $236 per computer. 
B) The importer will earn a profit of approximately $171 per computer. 
C) The importer will earn a profit of approximately $65 per computer. 
D) The importer will incur a loss of approximately $67 per computer. 
E) The importer will incur a loss of approximately $105 per computer.

Question 4

Which of the following enables organizations to conduct international trade without having to resort to barter?

Accepted Answer

A) Foreign exchange market 
B) Caribbean Single Market and Economy 
C) Auction market 
D) Countertrade 
E) Balance-of-trade equilibrium 
A) Foreign exchange market 
B) Caribbean Single Market and Economy 
C) Auction market 
D) Countertrade 
E) Balance-of-trade equilibrium

Question 5

Which of the following occurs when a government increases the money supply?

Accepted Answer

A) It results in an overall decrease in credit. 
B) It makes it difficult for individuals and companies to borrow from banks. 
C) It makes it easier for banks to borrow from the government. 
D) It causes a decrease in demand for goods and services. 
E) It causes price deflation as the money supply exceeds goods and services output. 
A) It results in an overall decrease in credit. 
B) It makes it difficult for individuals and companies to borrow from banks. 
C) It makes it easier for banks to borrow from the government. 
D) It causes a decrease in demand for goods and services. 
E) It causes price deflation as the money supply exceeds goods and services output.

Question 6

Which of the following is true of inflation?

Accepted Answer

A) It occurs when the demand for a particular currency is more than the supply. 
B) It occurs when securities are purchased in one market for immediate resale in another. 
C) It occurs when two parties agree to exchange currency and execute a deal at a specific date in the future. 
D) It occurs when the quantity of money in circulation rises faster than the stock of goods and services. 
E) It occurs when output increases faster than the money supply. 
A) It occurs when the demand for a particular currency is more than the supply. 
B) It occurs when securities are purchased in one market for immediate resale in another. 
C) It occurs when two parties agree to exchange currency and execute a deal at a specific date in the future. 
D) It occurs when the quantity of money in circulation rises faster than the stock of goods and services. 
E) It occurs when output increases faster than the money supply.

Question 7

According to the Fisher effect, if the "real" rate of interest in a country is 4 percent and the expected annual inflation is 9 percent, what would the "nominal" interest rate be?

Accepted Answer

A) 5 percent 
B) 13 percent 
C) 9 percent 
D) 36 percent 
E) 2.25 percent 
A) 5 percent 
B) 13 percent 
C) 9 percent 
D) 36 percent 
E) 2.25 percent

Question 8

What is meant by economic exposure?

Accepted Answer

A) The extent to which a firm's future international earning power is affected by changes in exchange rates 
B) The impact of currency exchange rate changes on the reported financial statements of a company 
C) The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values 
D) The extent to which the quantity of money in circulation rises faster than the stock of goods and services 
E) The extent of disparity in prices, when expressed in the same currency, of similar products in different countries 
A) The extent to which a firm's future international earning power is affected by changes in exchange rates 
B) The impact of currency exchange rate changes on the reported financial statements of a company 
C) The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values 
D) The extent to which the quantity of money in circulation rises faster than the stock of goods and services 
E) The extent of disparity in prices, when expressed in the same currency, of similar products in different countries

Question 9

Which of the following transactions is used to move out of one currency and into another for a limited period without incurring foreign exchange risk?

Accepted Answer

A) Currency swap 
B) Currency speculation 
C) Carry trade 
D) Spot exchange 
E) Arbitrage 
A) Currency swap 
B) Currency speculation 
C) Carry trade 
D) Spot exchange 
E) Arbitrage

Question 10

Companies engage in currency speculation to get minimal but assured returns from idle cash.

Accepted Answer

A) True 
 B)False

Question 11

What is meant by a currency swap?

Accepted Answer

A currency swap is the simultaneous purc

Question 12

Companies can deal with the problem of nonconvertibility of currency by engaging in:

Accepted Answer

A) price discrimination. 
B) countertrade. 
C) arbitrage. 
D) price skimming. 
E) currency speculation. 
A) price discrimination. 
B) countertrade. 
C) arbitrage. 
D) price skimming. 
E) currency speculation.

Question 13

Which of the following has no impediments to the free flow of goods and services, such as trade barriers?

Accepted Answer

A) Economic Union 
B) Currency Board 
C) Efficient market 
D) Carry trade 
E) European Monetary System 
A) Economic Union 
B) Currency Board 
C) Efficient market 
D) Carry trade 
E) European Monetary System

Question 14

The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the international Fisher effect, the Brazilian real should:

Accepted Answer

A) appreciate by 3 percent against the Japanese yen. 
B) depreciate by 3 percent against the Japanese yen. 
C) appreciate by 1.5 percent against the Japanese yen. 
D) depreciate by 1.5 percent against the Japanese yen. 
E) appreciate by 15 percent against the Japanese yen. 
A) appreciate by 3 percent against the Japanese yen. 
B) depreciate by 3 percent against the Japanese yen. 
C) appreciate by 1.5 percent against the Japanese yen. 
D) depreciate by 1.5 percent against the Japanese yen. 
E) appreciate by 15 percent against the Japanese yen.

Question 15

To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and P× be the price of the same basket of goods in Japanese yen. What does the purchasing power parity (PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E$/×?

Accepted Answer

A) E$/× = (1 + P×)/P$ 
B) E$/× = (1 + P$)/P× 
C) E$/× = P×/P$ 
D) E$/× = P$/P× 
E) E$/× = (1 + P$)/(1 + P×) 
A) E$/× = (1 + P×)/P$ 
B) E$/× = (1 + P$)/P× 
C) E$/× = P×/P$ 
D) E$/× = P$/P× 
E) E$/× = (1 + P$)/(1 + P×)

Question 16

Which of the following is true of the purchasing power parity (PPP) theory?

Accepted Answer

A) A country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I). 
B) The exchange rate will not change if relative prices change. 
C) The price of a "basket of goods" should be roughly equivalent in each country in relatively efficient markets. 
D) In competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price. 
E) If the law of one price were true for all goods and services, the PPP exchange rate could not be found from any individual set of prices. 
A) A country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I). 
B) The exchange rate will not change if relative prices change. 
C) The price of a "basket of goods" should be roughly equivalent in each country in relatively efficient markets. 
D) In competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price. 
E) If the law of one price were true for all goods and services, the PPP exchange rate could not be found from any individual set of prices.

Question 17

Which of the following instances indicates that the dollar is selling at a premium on the 30-day forward market?

Accepted Answer

A) The spot exchange rate is currently $1 = ×120 and changes to $1 = ×130 after 30 days. 
B) The spot exchange rate is currently $1 = ×120 and changes to $1 = ×110 after 30 days. 
C) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×110 after 30 days. 
D) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×130 after 30 days. 
E) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×120. 
A) The spot exchange rate is currently $1 = ×120 and changes to $1 = ×130 after 30 days. 
B) The spot exchange rate is currently $1 = ×120 and changes to $1 = ×110 after 30 days. 
C) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×110 after 30 days. 
D) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×130 after 30 days. 
E) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×120.

Question 18

How are spot exchange rates determined?

Accepted Answer

A) By using historical average prices of different currencies 
B) By the interaction between demand and supply of a currency relative to other currencies 
C) By taking the average of a basket of currencies 
D) By government decree 
E) By predicting future currency movements 
A) By using historical average prices of different currencies 
B) By the interaction between demand and supply of a currency relative to other currencies 
C) By taking the average of a basket of currencies 
D) By government decree 
E) By predicting future currency movements

Question 19

A lag strategy involves:

Accepted Answer

A) delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate. 
B) delaying the collection of foreign currency receivables when a foreign currency is expected to depreciate. 
C) attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate. 
D) paying foreign currency payables (to suppliers) before they are due when a currency is expected to appreciate. 
E) paying foreign currency payables (to suppliers) before they are due when a currency is expected to depreciate. 
A) delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate. 
B) delaying the collection of foreign currency receivables when a foreign currency is expected to depreciate. 
C) attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate. 
D) paying foreign currency payables (to suppliers) before they are due when a currency is expected to appreciate. 
E) paying foreign currency payables (to suppliers) before they are due when a currency is expected to depreciate.

Question 20

A lead strategy involves:

Accepted Answer

A) delaying foreign currency payables when a currency is expected to appreciate. 
B) delaying foreign currency payables when a currency is expected to depreciate. 
C) attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate. 
D) attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. 
E) delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate. 
A) delaying foreign currency payables when a currency is expected to appreciate. 
B) delaying foreign currency payables when a currency is expected to depreciate. 
C) attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate. 
D) attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. 
E) delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate.

What happens in the foreign exchange market does not directly impact the sales, profits, and strategy of a multinational enterprise.

Which of the following is a reason for London's dominance in the foreign exchange market?

Which of the following enables organizations to conduct international trade without having to resort to barter?

Which of the following occurs when a government increases the money supply?

Which of the following is true of inflation?

According to the Fisher effect, if the "real" rate of interest in a country is 4 percent and the expected annual inflation is 9 percent, what would the "nominal" interest rate be?

What is meant by economic exposure?

Which of the following transactions is used to move out of one currency and into another for a limited period without incurring foreign exchange risk?

Companies engage in currency speculation to get minimal but assured returns from idle cash.

What is meant by a currency swap?

Companies can deal with the problem of nonconvertibility of currency by engaging in:

Which of the following has no impediments to the free flow of goods and services, such as trade barriers?

The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the international Fisher effect, the Brazilian real should:

To express the PPP theory in symbols, let P_$ be the U.S. dollar price of a basket of particular goods and P_× be the price of the same basket of goods in Japanese yen. What does the purchasing power parity (PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E_$/×?

Which of the following is true of the purchasing power parity (PPP) theory?

Which of the following instances indicates that the dollar is selling at a premium on the 30-day forward market?

How are spot exchange rates determined?

A lag strategy involves:

A lead strategy involves:

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Strategy of International Business

Entering Foreign Markets

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and Rd

Global Human Resource Management

Filters

Exam 10: The Foreign Exchange Market

What happens in the foreign exchange market does not directly impact the sales, profits, and strategy of a multinational enterprise.

Which of the following is a reason for London's dominance in the foreign exchange market?

Which of the following enables organizations to conduct international trade without having to resort to barter?

Which of the following occurs when a government increases the money supply?

Which of the following is true of inflation?

According to the Fisher effect, if the "real" rate of interest in a country is 4 percent and the expected annual inflation is 9 percent, what would the "nominal" interest rate be?

What is meant by economic exposure?

Which of the following transactions is used to move out of one currency and into another for a limited period without incurring foreign exchange risk?

Companies engage in currency speculation to get minimal but assured returns from idle cash.

What is meant by a currency swap?

Companies can deal with the problem of nonconvertibility of currency by engaging in:

Which of the following has no impediments to the free flow of goods and services, such as trade barriers?

The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the international Fisher effect, the Brazilian real should:

To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and P× be the price of the same basket of goods in Japanese yen. What does the purchasing power parity (PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E$/×?

Which of the following is true of the purchasing power parity (PPP) theory?

Which of the following instances indicates that the dollar is selling at a premium on the 30-day forward market?

How are spot exchange rates determined?

A lag strategy involves:

A lead strategy involves:

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Strategy of International Business

Entering Foreign Markets

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and Rd

Global Human Resource Management

Filters

To express the PPP theory in symbols, let P_$ be the U.S. dollar price of a basket of particular goods and P_× be the price of the same basket of goods in Japanese yen. What does the purchasing power parity (PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E_$/×?