Question 1

When companies wish to convert currencies,they typically enter the foreign exchange market directly.

Accepted Answer

A) True 
 B)False

Question 2

Economic exposure,a category of foreign exchange risk,is distinct from transaction exposure,which is concerned with the effect of exchange rate changes on individual transactions,most of which are short-term affairs that will be executed within a few weeks or months.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is true of arbitrage opportunities in foreign exchange markets?

Accepted Answer

A)  They cause long-term bandwagon effects. 
B)  They tend to be small and they disappear in minutes. 
C)  They tend to occur very frequently. 
D)  They are only valid for dollar transactions. 
E)  They provide insurance against foreign exchange risk. 
A)  They cause long-term bandwagon effects. 
B)  They tend to be small and they disappear in minutes. 
C)  They tend to occur very frequently. 
D)  They are only valid for dollar transactions. 
E)  They provide insurance against foreign exchange risk.

Question 4

The law of one price states that:

Accepted Answer

A)  by comparing the prices of identical products in different currencies, it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient. 
B)  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). 
C)  a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower. 
D)  when the growth in a country's money supply is faster than the growth in its output, price inflation is fueled. 
E)  in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when their price is expressed in terms of in the same currency. 
A)  by comparing the prices of identical products in different currencies, it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient. 
B)  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). 
C)  a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower. 
D)  when the growth in a country's money supply is faster than the growth in its output, price inflation is fueled. 
E)  in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when their price is expressed in terms of in the same currency.

Question 5

What is meant by arbitrage?

Accepted Answer

A)  To provide insurance or hedge against the risks that arise from volatile changes in exchange rates 
B)  A transaction between two parties that involves exchanging currency and executing a deal at some specific date in the future 
C)  Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates 
D)  The purchase of securities in one market for immediate resale in another to profit from a price discrepancy 
E)  To borrow in one currency where interest rates are low and use the proceeds to invest in another currency where interest rates are high 
A)  To provide insurance or hedge against the risks that arise from volatile changes in exchange rates 
B)  A transaction between two parties that involves exchanging currency and executing a deal at some specific date in the future 
C)  Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates 
D)  The purchase of securities in one market for immediate resale in another to profit from a price discrepancy 
E)  To borrow in one currency where interest rates are low and use the proceeds to invest in another currency where interest rates are high

Question 6

The average price of a Big Mac in the United States is $3.58.Which of the following currencies is the most overvalued according to the Big Mac Index?

Accepted Answer

A)  Japanese yen; average price of a Big Mac equals $3.50 
B)  South African rand; average price of a Big Mac equals $2.46 
C)  Norwegian krone; average price of a Big Mac equals $7.02 
D)  Chinese yuan; average price of a Big Mac equals $1.83 
E)  Swiss franc; average price of a Big Mac equals $6.80 
A)  Japanese yen; average price of a Big Mac equals $3.50 
B)  South African rand; average price of a Big Mac equals $2.46 
C)  Norwegian krone; average price of a Big Mac equals $7.02 
D)  Chinese yuan; average price of a Big Mac equals $1.83 
E)  Swiss franc; average price of a Big Mac equals $6.80

Question 7

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 8

Which of the following premises is technical analysis,an approach to exchange rate forecasting,based on?

Accepted Answer

A)  Price and volume data cannot be used to determine past trends. 
B)  Econometric models drawn from economic theory are best suited to predict exchange rate movements. 
C)  The foreign exchange market is efficient and forward exchange rates are best predictors of future spot exchange rates. 
D)  Previous market trends and waves can be used to predict future market trends and waves. 
E)  Since forward exchange rates are best predictors of future spot rates, it makes no sense to invest in forecasting. 
A)  Price and volume data cannot be used to determine past trends. 
B)  Econometric models drawn from economic theory are best suited to predict exchange rate movements. 
C)  The foreign exchange market is efficient and forward exchange rates are best predictors of future spot exchange rates. 
D)  Previous market trends and waves can be used to predict future market trends and waves. 
E)  Since forward exchange rates are best predictors of future spot rates, it makes no sense to invest in forecasting.

Question 9

The failure to find a strong link between relative inflation rates and exchange rate movements has been referred to as the _____.

Accepted Answer

A)  currency crisis 
B)  banking crisis 
C)  purchasing power parity puzzle 
D)  bandwagon effect 
E)  foreign exchange risk 
A)  currency crisis 
B)  banking crisis 
C)  purchasing power parity puzzle 
D)  bandwagon effect 
E)  foreign exchange risk

Question 10

Describe the difference between fundamental analysis and technical analysis in forecasting exchange rate movements.

Accepted Answer

Assuming the inefficient market school i

Question 11

_____,a category of foreign exchange risk,is concerned with the long-run effect of changes in exchange rates on future prices,sales,and costs.

Accepted Answer

A)  Currency speculation 
B)  Transaction exposure 
C)  Economic exposure 
D)  Translation exposure 
E)  Countertrade 
A)  Currency speculation 
B)  Transaction exposure 
C)  Economic exposure 
D)  Translation exposure 
E)  Countertrade

Question 12

Countertrade makes sense when a country's currency is _____.

Accepted Answer

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

Question 13

_____,a category of foreign exchange risk,is concerned with the effect of exchange rate changes on individual transactions,most of which are short-term affairs that will be executed within a few weeks or months.

Accepted Answer

A)  Purchasing power parity 
B)  Transaction exposure 
C)  Economic exposure 
D)  Translation exposure 
E)  Currency speculation 
A)  Purchasing power parity 
B)  Transaction exposure 
C)  Economic exposure 
D)  Translation exposure 
E)  Currency speculation

Question 14

A(n)_____ refers to the rate at which one currency is converted into another.

Accepted Answer

A)  economic exposure 
B)  arbitrage 
C)  exchange rate 
D)  tariff rate 
E)  currency swap 
A)  economic exposure 
B)  arbitrage 
C)  exchange rate 
D)  tariff rate 
E)  currency swap

Question 15

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 16

Which of the following is a variable used in exchange rate forecasting models based on fundamental analysis?

Accepted Answer

A)  Relative strength indicator 
B)  Moving average 
C)  Inflation rate 
D)  Business cycles 
E)  Regression 
A)  Relative strength indicator 
B)  Moving average 
C)  Inflation rate 
D)  Business cycles 
E)  Regression

Question 17

Which of the following is a way in which enterprises with some market power limit arbitrage so that their price discrimination policy works?

Accepted Answer

A)  Pricing its products identically despite huge differences in demand across different markets 
B)  Differentiating otherwise identical products among nations along some line, such as design or packaging 
C)  Adopting a pricing strategy that matches what competitors charge in each of the different national markets 
D)  Limiting sales of its products to only a few nations 
E)  Selling its products at higher prices than normal to break even by selling fewer units 
A)  Pricing its products identically despite huge differences in demand across different markets 
B)  Differentiating otherwise identical products among nations along some line, such as design or packaging 
C)  Adopting a pricing strategy that matches what competitors charge in each of the different national markets 
D)  Limiting sales of its products to only a few nations 
E)  Selling its products at higher prices than normal to break even by selling fewer units

Question 18

If the law of one price were true for all goods and services,the purchasing power parity (PPP)exchange rate could be found from any individual set of prices.

Accepted Answer

A) True 
 B)False

Question 19

If a country's government does not control the rate of growth in money supply:

Accepted Answer

A)  its future inflation rate will be low. 
B)  its taxes will decrease in the future. 
C)  it will see reduced spending on public infrastructure projects. 
D)  its currency could depreciate in the future. 
E)  its output of goods and services will exceed money supply, thereby fueling deflation. 
A)  its future inflation rate will be low. 
B)  its taxes will decrease in the future. 
C)  it will see reduced spending on public infrastructure projects. 
D)  its currency could depreciate in the future. 
E)  its output of goods and services will exceed money supply, thereby fueling deflation.

Question 20

Explain the concept of economic exposure.How is it different from transaction exposure?

Accepted Answer

Foreign exchange risk is usually divided

When companies wish to convert currencies,they typically enter the foreign exchange market directly.

Economic exposure,a category of foreign exchange risk,is distinct from transaction exposure,which is concerned with the effect of exchange rate changes on individual transactions,most of which are short-term affairs that will be executed within a few weeks or months.

Which of the following is true of arbitrage opportunities in foreign exchange markets?

The law of one price states that:

What is meant by arbitrage?

The average price of a Big Mac in the United States is $3.58.Which of the following currencies is the most overvalued according to the Big Mac Index?

Which of the following is true of inflation?

Which of the following premises is technical analysis,an approach to exchange rate forecasting,based on?

The failure to find a strong link between relative inflation rates and exchange rate movements has been referred to as the _____.

Describe the difference between fundamental analysis and technical analysis in forecasting exchange rate movements.

_____,a category of foreign exchange risk,is concerned with the long-run effect of changes in exchange rates on future prices,sales,and costs.

Countertrade makes sense when a country's currency is _____.

_____,a category of foreign exchange risk,is concerned with the effect of exchange rate changes on individual transactions,most of which are short-term affairs that will be executed within a few weeks or months.

A(n)_____ refers to the rate at which one currency is converted into another.

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

Which of the following is a variable used in exchange rate forecasting models based on fundamental analysis?

Which of the following is a way in which enterprises with some market power limit arbitrage so that their price discrimination policy works?

If the law of one price were true for all goods and services,the purchasing power parity (PPP)exchange rate could be found from any individual set of prices.

If a country's government does not control the rate of growth in money supply:

Explain the concept of economic exposure.How is it different from transaction exposure?

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

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Exam 10: The Foreign Exchange Market

When companies wish to convert currencies,they typically enter the foreign exchange market directly.

Economic exposure,a category of foreign exchange risk,is distinct from transaction exposure,which is concerned with the effect of exchange rate changes on individual transactions,most of which are short-term affairs that will be executed within a few weeks or months.

Which of the following is true of arbitrage opportunities in foreign exchange markets?

The law of one price states that:

What is meant by arbitrage?

The average price of a Big Mac in the United States is $3.58.Which of the following currencies is the most overvalued according to the Big Mac Index?

Which of the following is true of inflation?

Which of the following premises is technical analysis,an approach to exchange rate forecasting,based on?

The failure to find a strong link between relative inflation rates and exchange rate movements has been referred to as the _____.

Describe the difference between fundamental analysis and technical analysis in forecasting exchange rate movements.

_____,a category of foreign exchange risk,is concerned with the long-run effect of changes in exchange rates on future prices,sales,and costs.

Countertrade makes sense when a country's currency is _____.

_____,a category of foreign exchange risk,is concerned with the effect of exchange rate changes on individual transactions,most of which are short-term affairs that will be executed within a few weeks or months.

A(n)_____ refers to the rate at which one currency is converted into another.

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

Which of the following is a variable used in exchange rate forecasting models based on fundamental analysis?

Which of the following is a way in which enterprises with some market power limit arbitrage so that their price discrimination policy works?

If the law of one price were true for all goods and services,the purchasing power parity (PPP)exchange rate could be found from any individual set of prices.

If a country's government does not control the rate of growth in money supply:

Explain the concept of economic exposure.How is it different from transaction exposure?

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