Question 1

A government increasing the money supply is analogous to:

Accepted Answer

A) giving people more money. 
B) increasing interest rates. 
C) discouraging spending. 
D) reducing price inflation. 
A) giving people more money. 
B) increasing interest rates. 
C) discouraging spending. 
D) reducing price inflation.

Question 2

Which of the following observations is true of leading and lagging strategies?

Accepted Answer

A) They are easy to implement. 
B) They primarily protect long-term cash flows from adverse changes in exchange rates. 
C) Firms need minimal bargaining power to implement them. 
D) Government rules often limit leads and lags. 
A) They are easy to implement. 
B) They primarily protect long-term cash flows from adverse changes in exchange rates. 
C) Firms need minimal bargaining power to implement them. 
D) Government rules often limit leads and lags.

Question 3

A _____ strategy involves delaying collection of foreign currency receivables if that currency is expected to appreciate and delaying payables if the currency is expected to depreciate.

Accepted Answer

A) lag 
B) forward 
C) contrarian 
D) lead 
A) lag 
B) forward 
C) contrarian 
D) lead

Question 4

According to economic theory,interest rates reflect expectations about likely:

Accepted Answer

A) population growth rates. 
B) current unemployment rates. 
C) current exchange rates. 
D) future inflation rates. 
A) population growth rates. 
B) current unemployment rates. 
C) current exchange rates. 
D) future inflation rates.

Question 5

A country's currency is said to be _____ when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

Accepted Answer

A) externally convertible 
B) nonconvertible 
C) internally convertible 
D) freely convertible 
A) externally convertible 
B) nonconvertible 
C) internally convertible 
D) freely convertible

Question 6

What is a currency swap?

Accepted Answer

A currency swap is the simultaneous purc

Question 7

Companies indulge in currency speculation in order to get minimal but assured returns from idle cash.

Accepted Answer

A) True 
 B)False

Question 8

______ is the impact of currency exchange rate changes on the reported financial statements of a company.

Accepted Answer

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

Question 9

Which of the following is relatively more useful to predict foreign long-term exchange rates?

Accepted Answer

A) Forward exchange rates 
B) Fundamental analysis 
C) Moving averages 
D) Technical analysis 
A) Forward exchange rates 
B) Fundamental analysis 
C) Moving averages 
D) Technical analysis

Question 10

Identify one of the major reasons behind the decline in the dollar-yen carry trade during 2008-09.

Accepted Answer

A) Increase in risk appetite making the carry trade less attractive 
B) Increase in the value of Japanese yen against the U.S.dollar 
C) Increase in interest rate differentials as Japanese rates came down 
D) Decrease in interest rate differentials as the U.S.rates went up 
A) Increase in risk appetite making the carry trade less attractive 
B) Increase in the value of Japanese yen against the U.S.dollar 
C) Increase in interest rate differentials as Japanese rates came down 
D) Decrease in interest rate differentials as the U.S.rates went up

Question 11

Identify a main function of the foreign exchange market.

Accepted Answer

A) Provide some insurance against foreign exchange risk. 
B) Prevent one-way movement of a currency with respect to another. 
C) Ensure that currencies are not volatile. 
D) Eliminate foreign exchange risk for companies involved in international trade. 
A) Provide some insurance against foreign exchange risk. 
B) Prevent one-way movement of a currency with respect to another. 
C) Ensure that currencies are not volatile. 
D) Eliminate foreign exchange risk for companies involved in international trade.

Question 12

Which is the most important foreign exchange trading center in terms of percentage of activity?

Accepted Answer

A) Zurich 
B) London 
C) New York 
D) Singapore 
A) Zurich 
B) London 
C) New York 
D) Singapore

Question 13

Assume that the currency of Country A falls sharply in value against the currency of Country

Accepted Answer

A) Country B's products will become more competitive 
B) Country A's exports to Country B will increase 
C) Country B's products will become less expensive in Country A 
D) There will be no difference in the volume or direction of trade 
A) Country B's products will become more competitive 
B) Country A's exports to Country B will increase 
C) Country B's products will become less expensive in Country A 
D) There will be no difference in the volume or direction of trade

Question 14

A common kind of swap is spot against forward.

Accepted Answer

A) True 
 B)False

Question 15

The efficient market school argues that companies should spend additional money trying to forecast short-run exchange rate movements.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following happens when governments typically impose convertibility restrictions on their currency out of the fear that free convertibility will lead to a run on their foreign exchange reserves?

Accepted Answer

A) Deflation 
B) Stagflation 
C) Liquidity rush 
D) Capital flight 
A) Deflation 
B) Stagflation 
C) Liquidity rush 
D) Capital flight

Question 17

A French company has 20 million euros that it wants to invest for three months.Investing in a Thai money market account gives the company a higher return than domestic investments.Is this investment risk-free? Why or why not?

Accepted Answer

A) Yes,because money market investments are considered to be equivalent to bank deposits. 
B) No,because foreign currency movements in the intervening period can affect the profitability. 
C) Yes,because such investments also lock foreign exchange rates for the duration of the investments. 
D) No,because money market instruments are considered to be the most speculative of all investments. 
A) Yes,because money market investments are considered to be equivalent to bank deposits. 
B) No,because foreign currency movements in the intervening period can affect the profitability. 
C) Yes,because such investments also lock foreign exchange rates for the duration of the investments. 
D) No,because money market instruments are considered to be the most speculative of all investments.

Question 18

The average price of a Big Mac in the United States is $3.58.If the "Big Mac Index" is an accurate indicator,which of the following currencies would be the most overvalued?

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 
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

Question 19

Which of the following is said to occur when traders move like a herd,all in the same direction and at the same time,in response to each others' perceived actions?

Accepted Answer

A) Fire-sale 
B) Flight to safety 
C) Bandwagon effect 
D) Fisher effect 
A) Fire-sale 
B) Flight to safety 
C) Bandwagon effect 
D) Fisher effect

Question 20

Every year,the newsmagazine The Economist publishes its own version of the PPP theorem,which it refers to as the:

Accepted Answer

A) "Commodity Index." 
B) "Big Mac Index." 
C) "Unilever Index." 
D) "Walmart Index." 
A) "Commodity Index." 
B) "Big Mac Index." 
C) "Unilever Index." 
D) "Walmart Index."

A government increasing the money supply is analogous to:

Which of the following observations is true of leading and lagging strategies?

A _____ strategy involves delaying collection of foreign currency receivables if that currency is expected to appreciate and delaying payables if the currency is expected to depreciate.

According to economic theory,interest rates reflect expectations about likely:

A country's currency is said to be _____ when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

What is a currency swap?

Companies indulge in currency speculation in order to get minimal but assured returns from idle cash.

______ is the impact of currency exchange rate changes on the reported financial statements of a company.

Which of the following is relatively more useful to predict foreign long-term exchange rates?

Identify one of the major reasons behind the decline in the dollar-yen carry trade during 2008-09.

Identify a main function of the foreign exchange market.

Which is the most important foreign exchange trading center in terms of percentage of activity?

Assume that the currency of Country A falls sharply in value against the currency of Country

A common kind of swap is spot against forward.

The efficient market school argues that companies should spend additional money trying to forecast short-run exchange rate movements.

Which of the following happens when governments typically impose convertibility restrictions on their currency out of the fear that free convertibility will lead to a run on their foreign exchange reserves?

A French company has 20 million euros that it wants to invest for three months.Investing in a Thai money market account gives the company a higher return than domestic investments.Is this investment risk-free? Why or why not?

The average price of a Big Mac in the United States is $3.58.If the "Big Mac Index" is an accurate indicator,which of the following currencies would be the most overvalued?

Which of the following is said to occur when traders move like a herd,all in the same direction and at the same time,in response to each others' perceived actions?

Every year,the newsmagazine The Economist publishes its own version of the PPP theorem,which it refers to as the:

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

A government increasing the money supply is analogous to:

Which of the following observations is true of leading and lagging strategies?

A _____ strategy involves delaying collection of foreign currency receivables if that currency is expected to appreciate and delaying payables if the currency is expected to depreciate.

According to economic theory,interest rates reflect expectations about likely:

A country's currency is said to be _____ when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

What is a currency swap?

Companies indulge in currency speculation in order to get minimal but assured returns from idle cash.

______ is the impact of currency exchange rate changes on the reported financial statements of a company.

Which of the following is relatively more useful to predict foreign long-term exchange rates?

Identify one of the major reasons behind the decline in the dollar-yen carry trade during 2008-09.

Identify a main function of the foreign exchange market.

Which is the most important foreign exchange trading center in terms of percentage of activity?

Assume that the currency of Country A falls sharply in value against the currency of Country

A common kind of swap is spot against forward.

The efficient market school argues that companies should spend additional money trying to forecast short-run exchange rate movements.

Which of the following happens when governments typically impose convertibility restrictions on their currency out of the fear that free convertibility will lead to a run on their foreign exchange reserves?

A French company has 20 million euros that it wants to invest for three months.Investing in a Thai money market account gives the company a higher return than domestic investments.Is this investment risk-free? Why or why not?

The average price of a Big Mac in the United States is $3.58.If the "Big Mac Index" is an accurate indicator,which of the following currencies would be the most overvalued?

Which of the following is said to occur when traders move like a herd,all in the same direction and at the same time,in response to each others' perceived actions?

Every year,the newsmagazine The Economist publishes its own version of the PPP theorem,which it refers to as the:

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