Question 1

_____ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.

Accepted Answer

A) Venture capital 
B) Hedging 
C) Currency speculation 
D) Exchange rate manipulation 
A) Venture capital 
B) Hedging 
C) Currency speculation 
D) Exchange rate manipulation

Question 2

Explain how the psychology of investors and bandwagon effects can have an impact on the movement in exchange rates.Do you believe that bandwagon effects really happen? Explain your answer.

Accepted Answer

As noted in the text,empirical evidence

Question 3

Which of the following is a reasonable conclusion about the future of nation where the government is strongly committed to controlling the rate of growth in money?

Accepted Answer

A) The country's future inflation rate may be low. 
B) The country's currency will steadily depreciate in the foreign exchange market. 
C) The country's economy will be marked by an abundance of liquidity. 
D) The country may see a good number of populist measures not funded by taxation. 
A) The country's future inflation rate may be low. 
B) The country's currency will steadily depreciate in the foreign exchange market. 
C) The country's economy will be marked by an abundance of liquidity. 
D) The country may see a good number of populist measures not funded by taxation.

Question 4

The Fisher effect states that a country's "nominal" interest rate (i)is:

Accepted Answer

A) the sum of the required "real" rate of interest (r)and the expected rate of inflation over the period for which the funds are to be lent (I). 
B) the difference between the required "real" rate of interest (r)and the expected exchange rate in the future (
E) . 
C) the sum of the required "current" rate of interest (i)and the expected exchange rate (
E) . 
D) the difference between the required "real" rate of interest (r)and the expected rate of inflation over the period for which the funds are to be lent (I). 
A) the sum of the required "real" rate of interest (r)and the expected rate of inflation over the period for which the funds are to be lent (I). 
B) the difference between the required "real" rate of interest (r)and the expected exchange rate in the future (
E) . 
C) the sum of the required "current" rate of interest (i)and the expected exchange rate (
E) . 
D) the difference between the required "real" rate of interest (r)and the expected rate of inflation over the period for which the funds are to be lent (I).

Question 5

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) Reinvestment 
B) Refinancing 
C) Contrarian trade 
D) Carry trade 
A) Reinvestment 
B) Refinancing 
C) Contrarian trade 
D) Carry trade

Question 6

Even though the foreign exchange market is critical to an economy as a whole,it does not have a direct impact on the sales,profits,and strategy of a multinational enterprise.

Accepted Answer

A) True 
 B)False

Question 7

When a firm insures itself against foreign exchange risk,we say that it is engaging in:

Accepted Answer

A) speculating. 
B) timing the market. 
C) hedging. 
D) market making. 
A) speculating. 
B) timing the market. 
C) hedging. 
D) market making.

Question 8

Which is the world's most important vehicle currency?

Accepted Answer

A) Euro 
B) U.S.dollar 
C) British pound 
D) Japanese yen 
A) Euro 
B) U.S.dollar 
C) British pound 
D) Japanese yen

Question 9

Which of the following observations is true of technical analysis?

Accepted Answer

A) This approach relies on economic fundamentals. 
B) The variables contained in the models of this approach typically include relative money supply growth rates,inflation rates,and interest rates. 
C) There is no theoretical rationale for the assumption of predictability underlying this approach. 
D) This approach has declined in importance over the last few years. 
A) This approach relies on economic fundamentals. 
B) The variables contained in the models of this approach typically include relative money supply growth rates,inflation rates,and interest rates. 
C) There is no theoretical rationale for the assumption of predictability underlying this approach. 
D) This approach has declined in importance over the last few years.

Question 10

Robben Inc.converted 1 million dollars into euros when the exchange rate was $1 = €0.75.The company converts this back into dollars after three months when the exchange rate is $1 = €0.80.Which of the following is true of the outcome of this transaction?

Accepted Answer

A) Loss of $62,500 
B) Loss of $66,667 
C) Gain of $50,000 
D) Gain of $62,500 
A) Loss of $62,500 
B) Loss of $66,667 
C) Gain of $50,000 
D) Gain of $62,500

Question 11

Carry trade has a speculative element attached to it.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following refers to the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values?

Accepted Answer

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

Question 13

Foreign exchange transactions that occur when a dealer wants to sell a nondollar currency and buy another rarely involve dollars.

Accepted Answer

A) True 
 B)False

Question 14

Since translation exposure is concerned with the present measurement of past events,the resulting accounting gains or losses are said to be unrealized,and therefore unimportant.

Accepted Answer

A) True 
 B)False

Question 15

A currency carry trade takes advantage of:

Accepted Answer

A) temporary undervaluation of one currency vis-à-vis another. 
B) mispricing of stocks trading in two exchanges. 
C) high volatility in currency exchange rates. 
D) differences in interest rates between countries. 
A) temporary undervaluation of one currency vis-à-vis another. 
B) mispricing of stocks trading in two exchanges. 
C) high volatility in currency exchange rates. 
D) differences in interest rates between countries.

Question 16

Which is the world's second most important vehicle currency?

Accepted Answer

A) Euro 
B) Japanese yen 
C) British pound 
D) Saudi riyal 
A) Euro 
B) Japanese yen 
C) British pound 
D) Saudi riyal

Question 17

A _____ strategy involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Accepted Answer

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

Question 18

Which of the following is a major reason why governments limit convertibility of their currency?

Accepted Answer

A) To encourage foreign investments 
B) To have a tight grip on fiscal policy 
C) To maintain an illusion of growth 
D) To preserve their foreign exchange reserves 
A) To encourage foreign investments 
B) To have a tight grip on fiscal policy 
C) To maintain an illusion of growth 
D) To preserve their foreign exchange reserves

Question 19

Assume that the exchange rate between the euro and the dollar is €1 = $1.20.A camera that retails for $300 in New York sells for €200 in Berlin.Ignoring any transaction costs or barriers,this represents an initial arbitrage profit potential of:

Accepted Answer

A) $60. 
B) $80. 
C) $20. 
D) $100. 
A) $60. 
B) $80. 
C) $20. 
D) $100.

Question 20

Which of the following 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?

Accepted Answer

A) Law of money supply 
B) Law of one price 
C) Theory of competitive advantage 
D) Theory of purchasing power parity 
A) Law of money supply 
B) Law of one price 
C) Theory of competitive advantage 
D) Theory of purchasing power parity

_____ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.

Explain how the psychology of investors and bandwagon effects can have an impact on the movement in exchange rates.Do you believe that bandwagon effects really happen? Explain your answer.

Which of the following is a reasonable conclusion about the future of nation where the government is strongly committed to controlling the rate of growth in money?

The Fisher effect states that a country's "nominal" interest rate (i)is:

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?

Even though the foreign exchange market is critical to an economy as a whole,it does not have a direct impact on the sales,profits,and strategy of a multinational enterprise.

When a firm insures itself against foreign exchange risk,we say that it is engaging in:

Which is the world's most important vehicle currency?

Which of the following observations is true of technical analysis?

Robben Inc.converted 1 million dollars into euros when the exchange rate was $1 = €0.75.The company converts this back into dollars after three months when the exchange rate is $1 = €0.80.Which of the following is true of the outcome of this transaction?

Carry trade has a speculative element attached to it.

Which of the following refers to the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values?

Foreign exchange transactions that occur when a dealer wants to sell a nondollar currency and buy another rarely involve dollars.

Since translation exposure is concerned with the present measurement of past events,the resulting accounting gains or losses are said to be unrealized,and therefore unimportant.

A currency carry trade takes advantage of:

Which is the world's second most important vehicle currency?

A _____ strategy involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Which of the following is a major reason why governments limit convertibility of their currency?

Assume that the exchange rate between the euro and the dollar is €1 = $1.20.A camera that retails for $300 in New York sells for €200 in Berlin.Ignoring any transaction costs or barriers,this represents an initial arbitrage profit potential of:

Which of the following 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?

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

_____ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.

Explain how the psychology of investors and bandwagon effects can have an impact on the movement in exchange rates.Do you believe that bandwagon effects really happen? Explain your answer.

Which of the following is a reasonable conclusion about the future of nation where the government is strongly committed to controlling the rate of growth in money?

The Fisher effect states that a country's "nominal" interest rate (i)is:

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?

Even though the foreign exchange market is critical to an economy as a whole,it does not have a direct impact on the sales,profits,and strategy of a multinational enterprise.

When a firm insures itself against foreign exchange risk,we say that it is engaging in:

Which is the world's most important vehicle currency?

Which of the following observations is true of technical analysis?

Robben Inc.converted 1 million dollars into euros when the exchange rate was $1 = €0.75.The company converts this back into dollars after three months when the exchange rate is $1 = €0.80.Which of the following is true of the outcome of this transaction?

Carry trade has a speculative element attached to it.

Which of the following refers to the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values?

Foreign exchange transactions that occur when a dealer wants to sell a nondollar currency and buy another rarely involve dollars.

Since translation exposure is concerned with the present measurement of past events,the resulting accounting gains or losses are said to be unrealized,and therefore unimportant.

A currency carry trade takes advantage of:

Which is the world's second most important vehicle currency?

A _____ strategy involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Which of the following is a major reason why governments limit convertibility of their currency?

Assume that the exchange rate between the euro and the dollar is €1 = $1.20.A camera that retails for $300 in New York sells for €200 in Berlin.Ignoring any transaction costs or barriers,this represents an initial arbitrage profit potential of:

Which of the following 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?

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