Question 1

Unlike PPP,the international Fisher effect is a good predictor of short-run changes in spot exchange rates.

Accepted Answer

A) True 
 B)False

Question 2

If the foreign exchange market is efficient,forward exchange rates should be unbiased predictors of future spot rates.This means that;

Accepted Answer

A) the predictions will be accurate in any specific situation. 
B) inaccuracies will not be consistently above or below future spot rates;they will be random. 
C) more accurate predictions of future spot rates can be calculated from publicly available information. 
D) market participants' collective predictions about future spot rates cannot be incorrect. 
A) the predictions will be accurate in any specific situation. 
B) inaccuracies will not be consistently above or below future spot rates;they will be random. 
C) more accurate predictions of future spot rates can be calculated from publicly available information. 
D) market participants' collective predictions about future spot rates cannot be incorrect.

Question 3

Explain the concepts of (1) transaction exposure and (2) translation exposure.

Accepted Answer

Transaction exposure is the extent to wh

Question 4

When a German tourist in Seoul goes to a bank to convert her euros into Korean wons,the exchange rate used is the spot exchange rate for that day.

Accepted Answer

A) True 
 B)False

Question 5

A dealer wishes to sell Thai baht for Brazilian real.Which "third" currency is most likely to appear in this transaction?

Accepted Answer

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

Question 6

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

Accepted Answer

A) They involve delaying inflows from weak-currency to strong-currency countries. 
B) They are used to maximize foreign exchange exposure of companies. 
C) They can help firms minimize their transaction and translation exposure. 
D) The involve accelerating payments from strong-currency to weak-currency countries. 
A) They involve delaying inflows from weak-currency to strong-currency countries. 
B) They are used to maximize foreign exchange exposure of companies. 
C) They can help firms minimize their transaction and translation exposure. 
D) The involve accelerating payments from strong-currency to weak-currency countries.

Question 7

Assume that the currency of Country A falls sharply in value against the currency of Country B. This exchange rate movement will boost Country B's exports to Country A.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following uses price and volume data to determine past trends,which are expected to continue into the future?

Accepted Answer

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

Question 9

Assume that the average price of a Big Mac in South Korea is $2.98 at the prevailing won/dollar exchange rate.The average price of a Big Mac in the United States is $3.58.This suggests that the Korean won is overvalued against the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 10

In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.This relationship is referred to as the:

Accepted Answer

A) interest rate paradox. 
B) Tobin effect. 
C) Fisher effect. 
D) Domino effect. 
A) interest rate paradox. 
B) Tobin effect. 
C) Fisher effect. 
D) Domino effect.

Question 11

Which of the following is concerned with the long-run effect of changes in exchange rates on future prices,sales,and costs?

Accepted Answer

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

Question 12

Let P$ be the U.S.dollar price of a basket of particular goods and P$\times$ be the price of the same basket of goods in Japanese yen.The PPP theory predicts that the dollar/yen exchange rate,ES1U1B1$/$\times$S1U1B0,should be equivalent to:

Accepted Answer

A) (1+P$\times$)/P$. 
B) (1 + P$)/P$\times$. 
C) P$\times$/P$. 
D) P$/P$\times$. 
A) (1+P$\times$)/P$. 
B) (1 + P$)/P$\times$. 
C) P$\times$/P$. 
D) P$/P$\times$.

Question 13

Which of the following will organizations have to resort to in order to conduct international trade in the absence of the foreign exchange market?

Accepted Answer

A) Barter system 
B) Spot market 
C) Silver standard 
D) Stock market 
A) Barter system 
B) Spot market 
C) Silver standard 
D) Stock market

Question 14

For price discrimination to work,arbitrage opportunities must be unlimited.

Accepted Answer

A) True 
 B)False

Question 15

Theoretically,a country in which price inflation is very high should expect to see its currency depreciate against that of countries in which inflation rates are lower.

Accepted Answer

A) True 
 B)False

Question 16

If a basket of goods costs $100 in the United States and €120 in Europe,PPP theory predicts that the dollar/euro exchange rate should be:

Accepted Answer

A) $1 = €1.20. 
B) $1 = €1. 
C) $1 = €0.87. 
D) $1 = €0.83. 
A) $1 = €1.20. 
B) $1 = €1. 
C) $1 = €0.87. 
D) $1 = €0.83.

Question 17

A _____ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

Accepted Answer

A) forward exchange 
B) spot exchange 
C) carry trade 
D) contrarian trade 
A) forward exchange 
B) spot exchange 
C) carry trade 
D) contrarian trade

Question 18

Spot exchange rates and the 30-day forward rates are usually the same.

Accepted Answer

A) True 
 B)False

Question 19

The _____ school of thought argues that forward exchange rates do the best possible job of forecasting future spot exchange rates,and,therefore,investing in forecasting services would be a waste of money.

Accepted Answer

A) efficient market 
B) inefficient market 
C) quantitative 
D) qualitative 
A) efficient market 
B) inefficient market 
C) quantitative 
D) qualitative

Question 20

Although the foreign exchange market offers some insurance against foreign exchange risk,it cannot provide complete insurance.

Accepted Answer

A) True 
 B)False

Unlike PPP,the international Fisher effect is a good predictor of short-run changes in spot exchange rates.

If the foreign exchange market is efficient,forward exchange rates should be unbiased predictors of future spot rates.This means that;

Explain the concepts of (1) transaction exposure and (2) translation exposure.

When a German tourist in Seoul goes to a bank to convert her euros into Korean wons,the exchange rate used is the spot exchange rate for that day.

A dealer wishes to sell Thai baht for Brazilian real.Which "third" currency is most likely to appear in this transaction?

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

Assume that the currency of Country A falls sharply in value against the currency of Country B. This exchange rate movement will boost Country B's exports to Country A.

Which of the following uses price and volume data to determine past trends,which are expected to continue into the future?

Assume that the average price of a Big Mac in South Korea is $2.98 at the prevailing won/dollar exchange rate.The average price of a Big Mac in the United States is $3.58.This suggests that the Korean won is overvalued against the U.S.dollar.

In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.This relationship is referred to as the:

Which of the following is concerned with the long-run effect of changes in exchange rates on future prices,sales,and costs?

Let P$ be the U.S.dollar price of a basket of particular goods and P $\times$ be the price of the same basket of goods in Japanese yen.The PPP theory predicts that the dollar/yen exchange rate,E_{$/ $\times$},should be equivalent to:

Which of the following will organizations have to resort to in order to conduct international trade in the absence of the foreign exchange market?

For price discrimination to work,arbitrage opportunities must be unlimited.

Theoretically,a country in which price inflation is very high should expect to see its currency depreciate against that of countries in which inflation rates are lower.

If a basket of goods costs $100 in the United States and €120 in Europe,PPP theory predicts that the dollar/euro exchange rate should be:

A _____ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

Spot exchange rates and the 30-day forward rates are usually the same.

The _____ school of thought argues that forward exchange rates do the best possible job of forecasting future spot exchange rates,and,therefore,investing in forecasting services would be a waste of money.

Although the foreign exchange market offers some insurance against foreign exchange risk,it cannot provide complete insurance.

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

Unlike PPP,the international Fisher effect is a good predictor of short-run changes in spot exchange rates.

If the foreign exchange market is efficient,forward exchange rates should be unbiased predictors of future spot rates.This means that;

Explain the concepts of (1) transaction exposure and (2) translation exposure.

When a German tourist in Seoul goes to a bank to convert her euros into Korean wons,the exchange rate used is the spot exchange rate for that day.

A dealer wishes to sell Thai baht for Brazilian real.Which "third" currency is most likely to appear in this transaction?

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

Assume that the currency of Country A falls sharply in value against the currency of Country B. This exchange rate movement will boost Country B's exports to Country A.

Which of the following uses price and volume data to determine past trends,which are expected to continue into the future?

Assume that the average price of a Big Mac in South Korea is $2.98 at the prevailing won/dollar exchange rate.The average price of a Big Mac in the United States is $3.58.This suggests that the Korean won is overvalued against the U.S.dollar.

In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.This relationship is referred to as the:

Which of the following is concerned with the long-run effect of changes in exchange rates on future prices,sales,and costs?

Let P$ be the U.S.dollar price of a basket of particular goods and P ×\times× be the price of the same basket of goods in Japanese yen.The PPP theory predicts that the dollar/yen exchange rate,E$/ ×\times× ,should be equivalent to:

Which of the following will organizations have to resort to in order to conduct international trade in the absence of the foreign exchange market?

For price discrimination to work,arbitrage opportunities must be unlimited.

Theoretically,a country in which price inflation is very high should expect to see its currency depreciate against that of countries in which inflation rates are lower.

If a basket of goods costs $100 in the United States and €120 in Europe,PPP theory predicts that the dollar/euro exchange rate should be:

A _____ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

Spot exchange rates and the 30-day forward rates are usually the same.

The _____ school of thought argues that forward exchange rates do the best possible job of forecasting future spot exchange rates,and,therefore,investing in forecasting services would be a waste of money.

Although the foreign exchange market offers some insurance against foreign exchange risk,it cannot provide complete insurance.

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

Let P$ be the U.S.dollar price of a basket of particular goods and P $\times$ be the price of the same basket of goods in Japanese yen.The PPP theory predicts that the dollar/yen exchange rate,E_{$/ $\times$},should be equivalent to: