Question 1

What is transaction exposure? How can transaction exposure be minimized?

Accepted Answer

Transaction exposure is the extent to wh

Question 2

Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is equivalent to $3.75 at the prevailing euro/dollar exchange rate. Using the concept of purchasing power parity, the euro is:

Accepted Answer

A)  undervalued by 25 percent against the dollar. 
B)  overvalued by 25 percent against the dollar. 
C)  appreciating relative to the dollar. 
D)  depreciating relative to the dollar. 
A)  undervalued by 25 percent against the dollar. 
B)  overvalued by 25 percent against the dollar. 
C)  appreciating relative to the dollar. 
D)  depreciating relative to the dollar.

Question 3

Explain the notion of economic exposure. How can economic exposure be minimized?

Accepted Answer

Economic exposure is the extent to which

Question 4

Restrictions on external convertibility can limit domestic companies from investing abroad.

Accepted Answer

A) True 
 B)False

Question 5

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would a follower of the inefficient market school of thought agree with?

Accepted Answer

A)  Companies would be better off investing in foreign exchange forecasting services. 
B)  Forward exchange rates do the best possible job of forecasting future spot exchange rates. 
C)  Companies can optimize their foreign exchange transactions by using forward markets. 
D)  Forward rates reflect all available information about likely future changes in exchange rates. 
A)  Companies would be better off investing in foreign exchange forecasting services. 
B)  Forward exchange rates do the best possible job of forecasting future spot exchange rates. 
C)  Companies can optimize their foreign exchange transactions by using forward markets. 
D)  Forward rates reflect all available information about likely future changes in exchange rates.

Question 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive ____.

Accepted Answer

A)  $1,000 
B)  $750 
C)  $1,500 
D)  $667 
A)  $1,000 
B)  $750 
C)  $1,500 
D)  $667

Question 10

A currency is said to be freely convertible when:

Accepted Answer

A)  its exchange rate with respect to other currencies is decided by the central bank of the country. 
B)  residents alone are allowed to convert it into a foreign currency without any limitations. 
C)  neither residents nor nonresidents are allowed to convert it into a foreign currency. 
D)  both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it. 
A)  its exchange rate with respect to other currencies is decided by the central bank of the country. 
B)  residents alone are allowed to convert it into a foreign currency without any limitations. 
C)  neither residents nor nonresidents are allowed to convert it into a foreign currency. 
D)  both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it.

Question 11

What is the difference between a spot exchange rate and a forward exchange rate?

Accepted Answer

The spot exchange rate is the rate at wh

Question 12

The efficient market school argues that investing in exchange rate forecasting services would be a waste of money.

Accepted Answer

A) True 
 B)False

Question 13

International businesses use foreign exchange markets for all of the following reasons except:

Accepted Answer

A)  to receive payments from foreign investments that may be in foreign currencies. 
B)  to pay a foreign company for its products or services in its country's currency. 
C)  to invest for short terms in money markets when they have spare cash. 
D)  to cover themselves from all risks involved in currency speculation. 
A)  to receive payments from foreign investments that may be in foreign currencies. 
B)  to pay a foreign company for its products or services in its country's currency. 
C)  to invest for short terms in money markets when they have spare cash. 
D)  to cover themselves from all risks involved in currency speculation.

Question 14

The International Fisher Effect has proven to have substantial power at predicting short-run changes in spot exchange rates.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high?

Accepted Answer

A)  Carry trade 
B)  Swing trade 
C)  Channel trade 
D)  Price action trade 
A)  Carry trade 
B)  Swing trade 
C)  Channel trade 
D)  Price action trade

Question 16

Discuss the two schools of thought on exchange rate forecasting.

Accepted Answer

There are two schools of thought on whet

Question 17

The _____ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country.

Accepted Answer

A)  random walk theory 
B)  theory of competitive advantage 
C)  theory of price inflation 
D)  purchasing power parity theory 
A)  random walk theory 
B)  theory of competitive advantage 
C)  theory of price inflation 
D)  purchasing power parity theory

Question 18

A spot exchange rate is quoted for 30 days, 90 days, and 180 days into the future.

Accepted Answer

A) True 
 B)False

Question 19

Why do governments limit currency convertibility?

Accepted Answer

A)  To preserve foreign exchange reserves. 
B)  To spend foreign exchange reserves. 
C)  To keep domestic companies from investing abroad. 
D)  To allow nonresidents to convert money to foreign currencies. 
A)  To preserve foreign exchange reserves. 
B)  To spend foreign exchange reserves. 
C)  To keep domestic companies from investing abroad. 
D)  To allow nonresidents to convert money to foreign currencies.

Question 20

Although a foreign exchange transaction can involve any two currencies, most transactions involve pounds on one side.

Accepted Answer

A) True 
 B)False

What is transaction exposure? How can transaction exposure be minimized?

Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is equivalent to $3.75 at the prevailing euro/dollar exchange rate. Using the concept of purchasing power parity, the euro is:

Explain the notion of economic exposure. How can economic exposure be minimized?

Restrictions on external convertibility can limit domestic companies from investing abroad.

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

Which of the following would a follower of the inefficient market school of thought agree with?

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.

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

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive ____.

A currency is said to be freely convertible when:

What is the difference between a spot exchange rate and a forward exchange rate?

The efficient market school argues that investing in exchange rate forecasting services would be a waste of money.

International businesses use foreign exchange markets for all of the following reasons except:

The International Fisher Effect has proven to have substantial power at predicting short-run changes in spot exchange rates.

Which of the following involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high?

Discuss the two schools of thought on exchange rate forecasting.

The _____ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country.

A spot exchange rate is quoted for 30 days, 90 days, and 180 days into the future.

Why do governments limit currency convertibility?

Although a foreign exchange transaction can involve any two currencies, most transactions involve pounds on one side.

Globalization

National Differences in Political Economy

Political Economy and Economic Development

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 Global Capital Market

The Strategy of International Business

The Organization of International Business

Entry Strategy and Strategic Alliances

Exporting, Importing, and Countertrade

Global Production, Outsourcing, and Logistics

Global Marketing and RD

Global Human Resource Management

Accounting and Finance in the International Business

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Exam 10: The Foreign Exchange Market

What is transaction exposure? How can transaction exposure be minimized?

Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is equivalent to $3.75 at the prevailing euro/dollar exchange rate. Using the concept of purchasing power parity, the euro is:

Explain the notion of economic exposure. How can economic exposure be minimized?

Restrictions on external convertibility can limit domestic companies from investing abroad.

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

Which of the following would a follower of the inefficient market school of thought agree with?

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.

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

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive ____.

A currency is said to be freely convertible when:

What is the difference between a spot exchange rate and a forward exchange rate?

The efficient market school argues that investing in exchange rate forecasting services would be a waste of money.

International businesses use foreign exchange markets for all of the following reasons except:

The International Fisher Effect has proven to have substantial power at predicting short-run changes in spot exchange rates.

Which of the following involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high?

Discuss the two schools of thought on exchange rate forecasting.

The _____ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country.

A spot exchange rate is quoted for 30 days, 90 days, and 180 days into the future.

Why do governments limit currency convertibility?

Although a foreign exchange transaction can involve any two currencies, most transactions involve pounds on one side.

Globalization

National Differences in Political Economy

Political Economy and Economic Development

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 Global Capital Market

The Strategy of International Business

The Organization of International Business

Entry Strategy and Strategic Alliances

Exporting, Importing, and Countertrade

Global Production, Outsourcing, and Logistics

Global Marketing and RD

Global Human Resource Management

Accounting and Finance in the International Business

Filters