Exam 7: Dealing with Foreign Exchange

Which of the following is true of the bid rate in foreign exchange markets?

The most extreme fixed rate policy is through a currency board.

Floating exchange rates are less volatile than fixed rates.

Briefly explain the cause for the fall of the Bretton Woods System.

The fixing of East and West Germany's currencies at a 1:1 ratio to each other during the German unification in 1990 is an example of a _____.

A weak dollar makes it more expensive for US tourists when traveling abroad.

Governments adopting the floating exchange rate policy tend to set the exchange rate of a currency relative to other currencies.

A country highly productive in manufacturing typically generates a merchandise trade deficit.

In foreign exchange,a(n)_____ is said to have occurred when investors move in the same direction at the same time,like a herd.

Currency hedging is a popular way to minimize the foreign exchange risk inherent in all nonspot transactions.

Compare and contrast the advantages and disadvantages of a strong and a weak dollar.

A _____ is the price of one currency,such as the dollar,in terms of another,such as the euro.

The rise of a country's productivity is usually accompanied by increased demand for its home currency.

If the forward rate of the euro per dollar is higher than the spot rate,the euro has a _____.

Which of the following types of exchange rate policies is apt for a pure free market economy?

A foreign exchange rate refers to the price of buying and selling commodities for future delivery.

A currency board is a monetary authority that issues notes and coins convertible into a key foreign currency at a _____ exchange rate.

The theory of purchasing power parity suggests that in the absence of trade barriers,the price for identical products sold in different countries will be different.

Which of the following characterizes a country's current account?

Capital flight is a phenomenon in which a large number of individuals and companies exchange _____.