Exam 9: The Foreign Exchange Market

If $1 bought more yen with a spot exchange than with a 30-day forward exchange it indicates the dollar is expected to depreciate against the yen in the next 30 days.When this occurs,we say the dollar is selling at a premium on the 30-day forward market.

The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as:

According to a less extreme version of the PPP theory,given relatively efficient markets,the price of a "basket of goods" should be roughly equivalent in each country.

A pair of shoes costs $\le$ 30 in Britain.The identical pair costs $45 in the United States.The exchange rate is $\le$ 1 = $1.80.In terms of cost of the shoes:

How can a firm minimize its foreign exchange exposure?

What is transaction exposure? How can transaction exposure be minimized?

Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about future currency movements.

An inefficient market is one in which prices do not reflect all available information.

Assuming the 30-day forward exchange rate were $1 = *30 and the spot exchange rate were $1 = *20,the dollar is selling at a _____ on the 30-day forward market.

_____ is the impact of currency exchange rates changes on the reported financial statements of a company.

A(n)_____ 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.

Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is $3.75 at the prevailing euro/dollar exchange rate,then according to PPP the euro is:

Explain PPP.Use an example to show how PPP can help explain exchange rates.

The extent to which a firm's future international earning power is affected by changes in exchange rates is known as:

Although a foreign exchange transaction can involve any two currencies,most transactions involve pounds on one side.

It is possible for a firm to purchase complete insurance against the risks that arise from changes in exchange rates in the foreign exchange market.

_____ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements.

Discuss the nature of the foreign exchange market.How fast has it been growing? Where are the most important trading centers?

When two parties agree to exchange currency and execute the deal immediately,the transaction is a:

According to the law of one price,at the most basic level,exchange rates are determined by supply and demand.