Exam 10: The Foreign Exchange Market

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it,what will happen?

There are no impediments to the free flow of goods and services in an efficient market.

Discuss the nature of the foreign exchange market.How fast has it been growing? Where are the most important trading centers?

The _____ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

Explain PPP.Use an example to show how PPP can help explain exchange rates.

Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m.is ¥120 = $1,and the yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1.A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo,thereby making a profit.The dealer has engaged in a(n):

Describe translation exposure.How can translation exposure be minimized?

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 open for only 12 hours in a day.

When two parties agree to exchange currency and execute the deal at some specific time in the future,a forward exchange occurs.

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

The _____ states that for any two countries,the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

Which of the following occurs when traders start moving as a herd in the same direction at the same time?

Which of the following is the most important foreign exchange trading center?

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

The _____ states that in competitive markets free of transportation costs and barriers to trade,identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

Assume that an American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for a period of two months.Which of the following,if it happens during the next two months,would imply that the company will earn less than 8 percent on its investment?

Which of the following occurs when the quantity of money in circulation in a country rises faster than the country's stock of goods and services?

_____ is the impact of short-run currency exchange rates changes on the reported financial statements of a company.

What is countertrade? Why would a firm engage in countertrade?