Question 1

Which of the following is a variable used in fundamental analysis?

Accepted Answer

A) Relative strength indicator 
B) Moving average 
C) Inflation rate 
D) Rate of change 
A) Relative strength indicator 
B) Moving average 
C) Inflation rate 
D) Rate of change C

Question 2

If the real rate of interest in a country is 4 percent and annual inflation is expected to be 9 percent,the nominal interest rate will be _____ percent.

Accepted Answer

A) 5 
B) 13 
C) 9 
D) 36 
A) 5 
B) 13 
C) 9 
D) 36 B

Question 3

How are spot exchange rates in the foreign exchange markets determined?

Accepted Answer

A) By using historical average prices 
B) By the relative demand and supply for different currencies 
C) By taking the average of a basket of currencies 
D) By government decree 
A) By using historical average prices 
B) By the relative demand and supply for different currencies 
C) By taking the average of a basket of currencies 
D) By government decree B

Question 4

Differentiate between spot exchange rates and forward exchange rates.

Accepted Answer

When two parties agree to exchange curre

Question 5

Which of the following draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements?

Accepted Answer

A) Technical analysis 
B) SWOT analysis 
C) Stochastic analysis 
D) Fundamental analysis 
A) Technical analysis 
B) SWOT analysis 
C) Stochastic analysis 
D) Fundamental analysis

Question 6

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

Accepted Answer

A) Economic exposure 
B) Transaction exposure 
C) Income exposure 
D) Translation exposure 
A) Economic exposure 
B) Transaction exposure 
C) Income exposure 
D) Translation exposure

Question 7

A U.S.company that imports laptop computers from Japan knows that in 30 days it must pay yen to a Japanese supplier when a shipment arrives.The company will pay the Japanese supplier $\times$150,000 for each computer,and the current dollar/yen spot exchange rate is $1 = $\times$110.The importer knows she 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 = $\times$105.Which of the following will happen if the exchange rate after 30 days is $1 = $\times$90?

Accepted Answer

A) The importer will earn a profit of $236 per computer. 
B) The importer will earn a profit of $171 per computer. 
C) The importer will earn a profit of $65 per computer. 
D) The importer will incur a loss of $67 per computer. 
A) The importer will earn a profit of $236 per computer. 
B) The importer will earn a profit of $171 per computer. 
C) The importer will earn a profit of $65 per computer. 
D) The importer will incur a loss of $67 per computer.

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

Which of the following positions is adopted by the inefficient market school of thought?

Accepted Answer

A) Forward exchange rates do the best possible job of forecasting future spot exchange rates. 
B) Forward exchange rates are unbiased predictors of future spot rates. 
C) Companies cannot beat the markets because forward rates reflect all available information about likely future changes in exchange rates. 
D) Companies can improve the foreign exchange market's estimate of future exchange rates by investing in forecasting services. 
A) Forward exchange rates do the best possible job of forecasting future spot exchange rates. 
B) Forward exchange rates are unbiased predictors of future spot rates. 
C) Companies cannot beat the markets because forward rates reflect all available information about likely future changes in exchange rates. 
D) Companies can improve the foreign exchange market's estimate of future exchange rates by investing in forecasting services.

Question 10

Which of the following refers to the purchase of securities in one market for immediate resale in another to profit from a price discrepancy?

Accepted Answer

A) Exercise 
B) Straddle 
C) Arbitrage 
D) Swap 
A) Exercise 
B) Straddle 
C) Arbitrage 
D) Swap

Question 11

When two parties agree to exchange currency and execute the deal immediately,the transaction is referred to as a(n):

Accepted Answer

A) futures transaction. 
B) call option exercise. 
C) arbitrage transaction. 
D) spot exchange. 
A) futures transaction. 
B) call option exercise. 
C) arbitrage transaction. 
D) spot exchange.

Question 12

A U.S.company that imports laptop computers from Japan knows that in 30 days it must pay yen to a Japanese supplier when a shipment arrives.The company will pay the Japanese supplier $\times$150,000 for each computer,and the current dollar/yen spot exchange rate is $1 = $\times$110.The importer knows she 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.Which of the following will happen if the exchange rate after 30 days is $1 = $\times$90?

Accepted Answer

A) The importer will earn a profit of $236 per computer. 
B) The importer will earn a profit of $67 per computer. 
C) The importer will incur a loss of $236 per computer. 
D) The importer will incur a loss of $67 per computer. 
A) The importer will earn a profit of $236 per computer. 
B) The importer will earn a profit of $67 per computer. 
C) The importer will incur a loss of $236 per computer. 
D) The importer will incur a loss of $67 per computer.

Question 13

Government intervention in cross-border trade,by violating the assumption of _____,weakens the link between relative price changes and changes in exchange rates predicted by PPP theory.

Accepted Answer

A) stable exchange rates 
B) labor mobility 
C) arbitrage 
D) efficient markets 
A) stable exchange rates 
B) labor mobility 
C) arbitrage 
D) efficient markets

Question 14

When the growth in a country's money supply is faster than the growth in its output,price inflation is fueled.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

Economic exposure is the extent to which

Question 16

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is $\times$120 = $1,and that the New York yen/dollar exchange rate at the same time is $\times$123 = $1.What will be the net profit if a dealer takes one million dollars to purchase $\times$123 million in New York and engages in an arbitrage trade?

Accepted Answer

A) $34,000 
B) $24,390 
C) $25,000 
D) $46,666 
A) $34,000 
B) $24,390 
C) $25,000 
D) $46,666

Question 17

Which of the following is true of a country that is running a deficit on a balance-of-payments current account?

Accepted Answer

A) It is importing more goods and services than it is exporting. 
B) It will result in steady appreciation of the country's currency. 
C) It will lead to very low interest rates in the country. 
D) It will lead to a shortage of the country's currency in the foreign exchange market. 
A) It is importing more goods and services than it is exporting. 
B) It will result in steady appreciation of the country's currency. 
C) It will lead to very low interest rates in the country. 
D) It will lead to a shortage of the country's currency in the foreign exchange market.

Question 18

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is $\times$120 = $1,and that the New York yen/dollar exchange rate at the same time is $\times$123 = $1.Which profit making situation exists here?

Accepted Answer

A) Option 
B) Straddle 
C) Swap 
D) Arbitrage 
A) Option 
B) Straddle 
C) Swap 
D) Arbitrage

Question 19

Tourists are the major participants in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 20

The PPP theory tells us that a country with a high inflation rate will see:

Accepted Answer

A) appreciation in its currency exchange rate. 
B) decrease in interest rates. 
C) increase in productivity. 
D) depreciation in its currency exchange rate. 
A) appreciation in its currency exchange rate. 
B) decrease in interest rates. 
C) increase in productivity. 
D) depreciation in its currency exchange rate.

Which of the following is a variable used in fundamental analysis?

If the real rate of interest in a country is 4 percent and annual inflation is expected to be 9 percent,the nominal interest rate will be _____ percent.

How are spot exchange rates in the foreign exchange markets determined?

Differentiate between spot exchange rates and forward exchange rates.

Which of the following draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements?

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

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

Which of the following positions is adopted by the inefficient market school of thought?

Which of the following refers to the purchase of securities in one market for immediate resale in another to profit from a price discrepancy?

When two parties agree to exchange currency and execute the deal immediately,the transaction is referred to as a(n):

Government intervention in cross-border trade,by violating the assumption of _____,weakens the link between relative price changes and changes in exchange rates predicted by PPP theory.

When the growth in a country's money supply is faster than the growth in its output,price inflation is fueled.

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

Which of the following is true of a country that is running a deficit on a balance-of-payments current account?

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is $\times$ 120 = $1,and that the New York yen/dollar exchange rate at the same time is $\times$ 123 = $1.Which profit making situation exists here?

Tourists are the major participants in the foreign exchange market.

The PPP theory tells us that a country with a high inflation rate will see:

Globalization

National Differences in Political Economy

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 RD

Global Human Resource Management

Filters

Exam 9: The Foreign Exchange Market

Which of the following is a variable used in fundamental analysis?

If the real rate of interest in a country is 4 percent and annual inflation is expected to be 9 percent,the nominal interest rate will be _____ percent.

How are spot exchange rates in the foreign exchange markets determined?

Differentiate between spot exchange rates and forward exchange rates.

Which of the following draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements?

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

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

Which of the following positions is adopted by the inefficient market school of thought?

Which of the following refers to the purchase of securities in one market for immediate resale in another to profit from a price discrepancy?

When two parties agree to exchange currency and execute the deal immediately,the transaction is referred to as a(n):

Government intervention in cross-border trade,by violating the assumption of _____,weakens the link between relative price changes and changes in exchange rates predicted by PPP theory.

When the growth in a country's money supply is faster than the growth in its output,price inflation is fueled.

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

Which of the following is true of a country that is running a deficit on a balance-of-payments current account?

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is ×\times× 120 = $1,and that the New York yen/dollar exchange rate at the same time is ×\times× 123 = $1.Which profit making situation exists here?

Tourists are the major participants in the foreign exchange market.

The PPP theory tells us that a country with a high inflation rate will see:

Globalization

National Differences in Political Economy

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 RD

Global Human Resource Management

Filters

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is $\times$ 120 = $1,and that the New York yen/dollar exchange rate at the same time is $\times$ 123 = $1.Which profit making situation exists here?