Exam 10: The Foreign Exchange Market

Since translation exposure,a category of foreign exchange risk,is concerned with the present measurement of past events,the resulting accounting gains or losses are said to be unrealized,and therefore unimportant.

The foreign exchange market is a market for converting the currency of one country into that of another country.

Which of the following is concerned with the present measurement of past events?

Which of the following is true of the differences in relative demand and supply of currencies?

Which of the following refers to carry trade?

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?

Which of the following is a vehicle currency due to its central role in foreign exchange deals?

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is ¥120 = $1,and the New York yen/dollar exchange rate at the same time (10 a.m.New York time)is ¥123 = $1.Which of the following transactions would yield immediate profit?

Transaction exposure,a category of foreign exchange risk,refers to the impact of currency exchange rate changes on the reported financial statements of a company.

How does an increase in money supply in an economy lead to inflation?

Theoretically,a country in which price inflation is very high should expect to see its currency depreciate against that of countries in which inflation rates are lower.

A French company wants to invest 20 million euros for three months.The company found that investing in a Thai money market account will give it a higher interest rate than domestic investments.Which of the following is true about this investment?

When is the phenomenon of capital flight most likely to occur?

_____,a category of foreign exchange risk,refers to the extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values.

Which of the following is true of the efficient market school of thought toward exchange rate forecasting?

The integration of financial centers implies there can be no significant difference in exchange rates quoted in the foreign exchange trading centers.

What is meant by economic exposure?

A lead strategy involves:

In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.This relationship is referred to as the _____.

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