Question 1

_____ is the extent to which a firm's future international earning power is affected by changes in exchange rates.

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 2

By 2007,forward instruments accounted for 85 percent of all foreign exchange transactions,while spot exchanges accounted for 15 percent.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) one price paradox. 
B) exchange rate paradox. 
C) purchasing power parity puzzle. 
D) relative movement puzzle. 
A) one price paradox. 
B) exchange rate paradox. 
C) purchasing power parity puzzle. 
D) relative movement puzzle.

Question 4

A(n)_____ has no impediments to the free flow of goods and services,such as trade barriers,and prices reflect all available public information.

Accepted Answer

A) structured market 
B) regional market 
C) efficient market 
D) mixed economy 
A) structured market 
B) regional market 
C) efficient market 
D) mixed economy

Question 5

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,making the pound an important vehicle currency 
B) The preeminence of Financial Times Stock Exchange (FTS
E) index as an economic health indicator 
C) London's geographical position making it the link between the East Asian and New York markets 
D) London being the preferred headquarters location for major multinational corporations 
A) Great Britain's decision to retain the British pound instead of using the euro,making the pound an important vehicle currency 
B) The preeminence of Financial Times Stock Exchange (FTS
E) index as an economic health indicator 
C) London's geographical position making it the link between the East Asian and New York markets 
D) London being the preferred headquarters location for major multinational corporations

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The speculative element of the carry trade is that its success is based upon a belief that:

Accepted Answer

A) there will be no adverse movement in exchange rates. 
B) liquidity is the key factor in determining interest rates. 
C) borrowing costs increase when demand for funds increases. 
D) foreign exchange rates are highly volatile. 
A) there will be no adverse movement in exchange rates. 
B) liquidity is the key factor in determining interest rates. 
C) borrowing costs increase when demand for funds increases. 
D) foreign exchange rates are highly volatile.

Question 8

When is capital flight most likely to occur?

Accepted Answer

A) During the recovery phase post an economic depression 
B) When domestic currency depreciates rapidly because of hyperinflation 
C) When a country's economic prospects appear bright in many respects 
D) When interest rates are low for a prolonged period of time 
A) During the recovery phase post an economic depression 
B) When domestic currency depreciates rapidly because of hyperinflation 
C) When a country's economic prospects appear bright in many respects 
D) When interest rates are low for a prolonged period of time

Question 9

What is carry trade? Is it speculative in nature? Explain with an example.

Accepted Answer

The carry trade involves borrowing in on

Question 10

Which of the following is transacted when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk?

Accepted Answer

A) Swap 
B) Delivery 
C) Commercial paper 
D) Straddle 
A) Swap 
B) Delivery 
C) Commercial paper 
D) Straddle

Question 11

Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market.Which of the following reflects the foreign exchange dealers' expectations about the dollar over the next 30 days?

Accepted Answer

A) The dollar will depreciate against the euro. 
B) The dealers are undecided about the direction of movement. 
C) The dollar will appreciate against the euro. 
D) The dollar/euro exchange rate will be steady. 
A) The dollar will depreciate against the euro. 
B) The dealers are undecided about the direction of movement. 
C) The dollar will appreciate against the euro. 
D) The dollar/euro exchange rate will be steady.

Question 12

Which currency did the euro replace as the world's second most important vehicle currency?

Accepted Answer

A) Japanese yen 
B) Swiss franc 
C) German mark 
D) Russian ruble 
A) Japanese yen 
B) Swiss franc 
C) German mark 
D) Russian ruble

Question 13

A firm needs to develop a mechanism for ensuring it maintains an appropriate mix of tactics and strategies for minimizing its foreign exchange exposure.Which of the following is true of the mechanism required?

Accepted Answer

A) Firms should focus solely on managing transaction and translation exposures. 
B) Forecasting future exchange rate movements should be avoided as it is speculative. 
C) Firms need to develop strategies for dealing with economic exposure. 
D) Firms should avoid central control of exposure. 
A) Firms should focus solely on managing transaction and translation exposures. 
B) Forecasting future exchange rate movements should be avoided as it is speculative. 
C) Firms need to develop strategies for dealing with economic exposure. 
D) Firms should avoid central control of exposure.

Question 14

If the euro gains against the dollar,we say that the euro is strengthening,from a dollar perspective.However,the reverse observation that the dollar is weakening against the euro need not be true from a euro perspective.

Accepted Answer

A) True 
 B)False

Question 15

If a country's government lacks the political will to control the rate of growth in money supply:

Accepted Answer

A) its future inflation rate will be low. 
B) its taxes are sure to increase in the future. 
C) it will see reduced spending. 
D) its currency could depreciate in the future. 
A) its future inflation rate will be low. 
B) its taxes are sure to increase in the future. 
C) it will see reduced spending. 
D) its currency could depreciate in the future.

Question 16

How does purchasing power parity and the law of one price relate to prices and exchange rate movements? Describe the purchasing power parity theory and the law of one price.

Accepted Answer

Purchasing power parity (PPP)and the law

Question 17

Organizations should develop a mechanism for ensuring it maintains an appropriate mix of tactics and strategies for minimizing foreign exchange exposure.What are some of the accepted common themes for this mechanism?

Accepted Answer

First,central control of exposure is nee

Question 18

Country A tightly controls the ability of its residents to convert its currency into other currencies.However,all foreign businesses with deposits in banks of Country A may,at any time,convert all their currency into foreign currency and take them out of the country.Country A's currency is:

Accepted Answer

A) partly convertible. 
B) nonconvertible. 
C) externally convertible. 
D) freely convertible. 
A) partly convertible. 
B) nonconvertible. 
C) externally convertible. 
D) freely convertible.

Question 19

Assume that the euro/dollar exchange rate is €1 = $1.20.If it costs $36 to buy a European product,the stated price of the product would be €30.

Accepted Answer

A) True 
 B)False

Question 20

If the expected rate of inflation in Germany is greater than that in Australia,German nominal interest rates will be greater than Australian nominal interest rates.

Accepted Answer

A) True 
 B)False

_____ is the extent to which a firm's future international earning power is affected by changes in exchange rates.

By 2007,forward instruments accounted for 85 percent of all foreign exchange transactions,while spot exchanges accounted for 15 percent.

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

A(n)_____ has no impediments to the free flow of goods and services,such as trade barriers,and prices reflect all available public information.

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

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

The speculative element of the carry trade is that its success is based upon a belief that:

When is capital flight most likely to occur?

What is carry trade? Is it speculative in nature? Explain with an example.

Which of the following is transacted when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk?

Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market.Which of the following reflects the foreign exchange dealers' expectations about the dollar over the next 30 days?

Which currency did the euro replace as the world's second most important vehicle currency?

A firm needs to develop a mechanism for ensuring it maintains an appropriate mix of tactics and strategies for minimizing its foreign exchange exposure.Which of the following is true of the mechanism required?

If the euro gains against the dollar,we say that the euro is strengthening,from a dollar perspective.However,the reverse observation that the dollar is weakening against the euro need not be true from a euro perspective.

If a country's government lacks the political will to control the rate of growth in money supply:

How does purchasing power parity and the law of one price relate to prices and exchange rate movements? Describe the purchasing power parity theory and the law of one price.

Organizations should develop a mechanism for ensuring it maintains an appropriate mix of tactics and strategies for minimizing foreign exchange exposure.What are some of the accepted common themes for this mechanism?

Country A tightly controls the ability of its residents to convert its currency into other currencies.However,all foreign businesses with deposits in banks of Country A may,at any time,convert all their currency into foreign currency and take them out of the country.Country A's currency is:

Assume that the euro/dollar exchange rate is €1 = $1.20.If it costs $36 to buy a European product,the stated price of the product would be €30.

If the expected rate of inflation in Germany is greater than that in Australia,German nominal interest rates will be greater than Australian nominal interest rates.

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

_____ is the extent to which a firm's future international earning power is affected by changes in exchange rates.

By 2007,forward instruments accounted for 85 percent of all foreign exchange transactions,while spot exchanges accounted for 15 percent.

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

A(n)_____ has no impediments to the free flow of goods and services,such as trade barriers,and prices reflect all available public information.

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

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

The speculative element of the carry trade is that its success is based upon a belief that:

When is capital flight most likely to occur?

What is carry trade? Is it speculative in nature? Explain with an example.

Which of the following is transacted when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk?

Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market.Which of the following reflects the foreign exchange dealers' expectations about the dollar over the next 30 days?

Which currency did the euro replace as the world's second most important vehicle currency?

A firm needs to develop a mechanism for ensuring it maintains an appropriate mix of tactics and strategies for minimizing its foreign exchange exposure.Which of the following is true of the mechanism required?

If the euro gains against the dollar,we say that the euro is strengthening,from a dollar perspective.However,the reverse observation that the dollar is weakening against the euro need not be true from a euro perspective.

If a country's government lacks the political will to control the rate of growth in money supply:

How does purchasing power parity and the law of one price relate to prices and exchange rate movements? Describe the purchasing power parity theory and the law of one price.

Organizations should develop a mechanism for ensuring it maintains an appropriate mix of tactics and strategies for minimizing foreign exchange exposure.What are some of the accepted common themes for this mechanism?

Country A tightly controls the ability of its residents to convert its currency into other currencies.However,all foreign businesses with deposits in banks of Country A may,at any time,convert all their currency into foreign currency and take them out of the country.Country A's currency is:

Assume that the euro/dollar exchange rate is €1 = $1.20.If it costs $36 to buy a European product,the stated price of the product would be €30.

If the expected rate of inflation in Germany is greater than that in Australia,German nominal interest rates will be greater than Australian nominal interest rates.

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