Question 1

Which of the following observations is true of technical analysis,an approach to exchange rate forecasting?

Accepted Answer

A)  It draws on economic theory to construct models for predicting exchange rate movements. 
B)  The variables contained in this model typically include relative money supply growth rates, inflation rates, and interest rates. 
C)  There is a sound theoretical rationale for the assumption of predictability underlying this approach. 
D)  Owing to its drawbacks, this approach has declined in importance over the last few years giving way to fundamental analysis. 
E)  It does not rely on a consideration of economic fundamentals. 
A)  It draws on economic theory to construct models for predicting exchange rate movements. 
B)  The variables contained in this model typically include relative money supply growth rates, inflation rates, and interest rates. 
C)  There is a sound theoretical rationale for the assumption of predictability underlying this approach. 
D)  Owing to its drawbacks, this approach has declined in importance over the last few years giving way to fundamental analysis. 
E)  It does not rely on a consideration of economic fundamentals.

Question 2

London has lost its leading position in the global foreign exchange market due to the diminishing importance of the British pound.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following caused a decline in the dollar-yen carry trade during 2008-09?

Accepted Answer

A)  Increase in risk appetite making the carry trade less attractive 
B)  Decrease in interest rate differentials as the U.S. rates came down 
C)  Increase in interest rate differentials as Japanese interest rates came down 
D)  Decrease in interest rate differentials as the U.S. interest rates went up 
E)  Decrease in interest rate differentials as the Japanese rates went up 
A)  Increase in risk appetite making the carry trade less attractive 
B)  Decrease in interest rate differentials as the U.S. rates came down 
C)  Increase in interest rate differentials as Japanese interest rates came down 
D)  Decrease in interest rate differentials as the U.S. interest rates went up 
E)  Decrease in interest rate differentials as the Japanese rates went up

Question 4

The yen/dollar exchange rate is ¥120 = $1 in London and ¥123 = $1 in New York at the same time.What is the net profit if a dealer takes $1,000,000 to purchase ¥1,23,000,000 in New York and engages in arbitrage by selling it in London?

Accepted Answer

A)  $34,000 
B)  $20,390 
C)  $25,000 
D)  $46,666 
E)  $39,454 
A)  $34,000 
B)  $20,390 
C)  $25,000 
D)  $46,666 
E)  $39,454

Question 5

A country's currency is said to be _____ when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

Accepted Answer

A)  externally convertible 
B)  nonconvertible 
C)  leading 
D)  freely convertible 
E)  lagging 
A)  externally convertible 
B)  nonconvertible 
C)  leading 
D)  freely convertible 
E)  lagging

Question 6

In terms of exchange rate forecasting,a(n)_____ market is one in which prices do not reflect all available information.

Accepted Answer

A)  inefficient 
B)  spot 
C)  futures 
D)  efficient 
E)  forward 
A)  inefficient 
B)  spot 
C)  futures 
D)  efficient 
E)  forward

Question 7

A(n)_____ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

Accepted Answer

A)  forward exchange 
B)  spot exchange 
C)  carry trade 
D)  currency swap 
E)  arbitrage 
A)  forward exchange 
B)  spot exchange 
C)  carry trade 
D)  currency swap 
E)  arbitrage

Question 8

Which of the following foreign exchange trading centers has the highest percentage of activity?

Accepted Answer

A)  Frankfurt 
B)  London 
C)  Paris 
D)  Hong Kong 
E)  Sydney 
A)  Frankfurt 
B)  London 
C)  Paris 
D)  Hong Kong 
E)  Sydney

Question 9

In terms of the approaches to exchange rate forecasting,_____ draw(s)on economic theory to construct sophisticated econometric models for predicting exchange rate movements.

Accepted Answer

A)  technical analysis 
B)  fractional integration models 
C)  Markov switching models 
D)  fundamental analysis 
E)  chart analysis 
A)  technical analysis 
B)  fractional integration models 
C)  Markov switching models 
D)  fundamental analysis 
E)  chart analysis

Question 10

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 11

When two parties agree to exchange currency and execute the deal immediately,the transaction is referred to as _____.

Accepted Answer

A)  forward exchange 
B)  countertrade 
C)  arbitrage 
D)  spot exchange 
E)  currency swap 
A)  forward exchange 
B)  countertrade 
C)  arbitrage 
D)  spot exchange 
E)  currency swap

Question 12

The currency of Venadia,a country,falls sharply in value against the currency of Lutetia,a neighboring country.Which of the following is a consequence of this exchange rate movement?

Accepted Answer

A)  Lutetia's products will achieve a competitive pricing in Venadia. 
B)  Venadia's exports to Lutetia will increase because Venadian goods will become cheaper in Lutetia. 
C)  Venadia's products will cost more in Lutetia. 
D)  There will be no difference in the volume or direction of trade. 
E)  Lutetia's exports to Venadia will increase because Lutetian goods will become cheaper in Venadia. 
A)  Lutetia's products will achieve a competitive pricing in Venadia. 
B)  Venadia's exports to Lutetia will increase because Venadian goods will become cheaper in Lutetia. 
C)  Venadia's products will cost more in Lutetia. 
D)  There will be no difference in the volume or direction of trade. 
E)  Lutetia's exports to Venadia will increase because Lutetian goods will become cheaper in Venadia.

Question 13

Technical analysis,an approach to foreign exchange forecasting,does not rely on a consideration of economic fundamentals.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following occurs when a government increases 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 15

The purchasing power parity (PPP)theory best predicts exchange rate changes for countries with _____.

Accepted Answer

A)  appreciating currencies 
B)  stable currencies 
C)  underdeveloped capital markets 
D)  small differentials in inflation rates 
E)  industrialized economies 
A)  appreciating currencies 
B)  stable currencies 
C)  underdeveloped capital markets 
D)  small differentials in inflation rates 
E)  industrialized economies

Question 16

The key to reducing _____ is to distribute the firm's productive assets to various locations so the firm's long-term financial well-being is not severely affected by adverse changes in exchange rates.

Accepted Answer

A)  transaction exposure 
B)  economic exposure 
C)  countertrade 
D)  arbitrage 
E)  translation exposure 
A)  transaction exposure 
B)  economic exposure 
C)  countertrade 
D)  arbitrage 
E)  translation exposure

Question 17

A common kind of currency swap is spot against forward.

Accepted Answer

A) True 
 B)False

Question 18

Relative monetary growth,relative inflation rates,and nominal interest rate differentials are all moderately good predictors of long-run changes in exchange rates.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  When the spot exchange rate is $1 = ¥120 currently and $1 = ¥130 after 30 days 
B)  When the spot exchange rate is $1 = ¥120 currently and $1 = ¥100 after 30 days 
C)  When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥110 after 30 days 
D)  When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥130 after 30 days 
E)  When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥120 after 30 days 
A)  When the spot exchange rate is $1 = ¥120 currently and $1 = ¥130 after 30 days 
B)  When the spot exchange rate is $1 = ¥120 currently and $1 = ¥100 after 30 days 
C)  When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥110 after 30 days 
D)  When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥130 after 30 days 
E)  When the current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥120 after 30 days

Question 20

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.The (purchasing power parity)PPP theory predicts that the dollar/yen exchange rate,E$/¥,should be equivalent to _____.

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¥)

Which of the following observations is true of technical analysis,an approach to exchange rate forecasting?

London has lost its leading position in the global foreign exchange market due to the diminishing importance of the British pound.

Which of the following caused a decline in the dollar-yen carry trade during 2008-09?

The yen/dollar exchange rate is ¥120 = $1 in London and ¥123 = $1 in New York at the same time.What is the net profit if a dealer takes $1,000,000 to purchase ¥1,23,000,000 in New York and engages in arbitrage by selling it in London?

A country's currency is said to be _____ when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

In terms of exchange rate forecasting,a(n)_____ market is one in which prices do not reflect all available information.

A(n)_____ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

Which of the following foreign exchange trading centers has the highest percentage of activity?

In terms of the approaches to exchange rate forecasting,_____ draw(s)on economic theory to construct sophisticated econometric models for predicting exchange rate movements.

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

When two parties agree to exchange currency and execute the deal immediately,the transaction is referred to as _____.

The currency of Venadia,a country,falls sharply in value against the currency of Lutetia,a neighboring country.Which of the following is a consequence of this exchange rate movement?

Technical analysis,an approach to foreign exchange forecasting,does not rely on a consideration of economic fundamentals.

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

The purchasing power parity (PPP)theory best predicts exchange rate changes for countries with _____.

The key to reducing _____ is to distribute the firm's productive assets to various locations so the firm's long-term financial well-being is not severely affected by adverse changes in exchange rates.

A common kind of currency swap is spot against forward.

Relative monetary growth,relative inflation rates,and nominal interest rate differentials are all moderately good predictors of long-run changes in exchange rates.

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

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.The (purchasing power parity)PPP theory predicts that the dollar/yen exchange rate,E_$/¥,should be equivalent to _____.

Globalization

National Differences in Political Economy

Political Economy and Economic Development

National Differences in Culture

Ethics in International Business

International Trade Theory

The Political Economy of 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, Outsourcing, and Logistics

Global Marketing and R-D

Global Human Resource Management

Filters

Exam 10: The Foreign Exchange Market

Which of the following observations is true of technical analysis,an approach to exchange rate forecasting?

London has lost its leading position in the global foreign exchange market due to the diminishing importance of the British pound.

Which of the following caused a decline in the dollar-yen carry trade during 2008-09?

The yen/dollar exchange rate is ¥120 = $1 in London and ¥123 = $1 in New York at the same time.What is the net profit if a dealer takes $1,000,000 to purchase ¥1,23,000,000 in New York and engages in arbitrage by selling it in London?

A country's currency is said to be _____ when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

In terms of exchange rate forecasting,a(n)_____ market is one in which prices do not reflect all available information.

A(n)_____ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

Which of the following foreign exchange trading centers has the highest percentage of activity?

In terms of the approaches to exchange rate forecasting,_____ draw(s)on economic theory to construct sophisticated econometric models for predicting exchange rate movements.

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

When two parties agree to exchange currency and execute the deal immediately,the transaction is referred to as _____.

The currency of Venadia,a country,falls sharply in value against the currency of Lutetia,a neighboring country.Which of the following is a consequence of this exchange rate movement?

Technical analysis,an approach to foreign exchange forecasting,does not rely on a consideration of economic fundamentals.

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

The purchasing power parity (PPP)theory best predicts exchange rate changes for countries with _____.

The key to reducing _____ is to distribute the firm's productive assets to various locations so the firm's long-term financial well-being is not severely affected by adverse changes in exchange rates.

A common kind of currency swap is spot against forward.

Relative monetary growth,relative inflation rates,and nominal interest rate differentials are all moderately good predictors of long-run changes in exchange rates.

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

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.The (purchasing power parity)PPP theory predicts that the dollar/yen exchange rate,E$/¥,should be equivalent to _____.

Globalization

National Differences in Political Economy

Political Economy and Economic Development

National Differences in Culture

Ethics in International Business

International Trade Theory

The Political Economy of 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, Outsourcing, and Logistics

Global Marketing and R-D

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.The (purchasing power parity)PPP theory predicts that the dollar/yen exchange rate,E_$/¥,should be equivalent to _____.