Question 1

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

Accepted Answer

The foreign exchange market is a global network of banks,brokers,and foreign exchange dealers connected by electronic communications systems.The market has been growing at a rapid pace.In April 2007,the average total value of global foreign exchange trading was about $3.21 trillion per day.The most important trading centers are London,New York,Zurich,Tokyo,and Singapore.

Question 2

When a tourist goes to a bank in a foreign country to convert money into the local currency,the exchange rate used is the forward rate.

Accepted Answer

A) True 
 B)False  True

Question 3

If the spot rate is $1 = ¥120,and the 30-day forward rate is $1 = ¥130,the dollar is selling at a discount in the forward market.

Accepted Answer

A) True 
 B)False  False

Question 4

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

Accepted Answer

The foreign exchange market is not locat

Question 5

Assume that the current exchange rate is €1 = $1.50.If you exchange 1,000 euros for dollars,you will receive _____.

Accepted Answer

A)  $1,000 
B)  $750 
C)  $1,500 
D)  $667 
A)  $1,000 
B)  $750 
C)  $1,500 
D)  $667

Question 6

Assume that the interest rate on borrowings in Japan is 1 percent,while the interest rate on deposits in Australian banks is 5 percent.A trader borrows in yen and then converts the money into Australian dollars and deposits it in an Australian bank to make a 4 percent margin.Which type of trade is this an example of?

Accepted Answer

A)  Swing trade 
B)  Carry trade 
C)  Channel trade 
D)  Price action trade 
A)  Swing trade 
B)  Carry trade 
C)  Channel trade 
D)  Price action trade

Question 7

What is countertrade? Why would a firm engage in countertrade?

Accepted Answer

Countertrade refers to a range of barter

Question 8

The Fisher Effect states that a country's "real" rate of interest is the sum of the "nominal" interest rate and the expected rate of inflation over the period for which the funds are to be lent.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

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

Question 10

Explain the notion of economic exposure.How can economic exposure be minimized?

Accepted Answer

Economic exposure is the extent to which

Question 11

Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m.is ¥120 = $1,and the yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1.A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo,thereby making a profit.The dealer has engaged in a(n):

Accepted Answer

A)  currency swap. 
B)  arbitrage. 
C)  carry trade. 
D)  straddle. 
A)  currency swap. 
B)  arbitrage. 
C)  carry trade. 
D)  straddle.

Question 12

Compare and contrast currencies that are freely convertible,externally convertible,and nonconvertible.

Accepted Answer

A country's currency is said to be freel

Question 13

When two parties agree to exchange currency and execute the deal at some specific time in the future,a forward exchange occurs.

Accepted Answer

A) True 
 B)False

Question 14

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it,what will happen?

Accepted Answer

A)  The dollar will appreciate against the yen 
B)  The dollar will depreciate against the yen 
C)  The exchange rates will remain the same 
D)  The yen will appreciate against the dollar 
A)  The dollar will appreciate against the yen 
B)  The dollar will depreciate against the yen 
C)  The exchange rates will remain the same 
D)  The yen will appreciate against the dollar

Question 15

The _____ suggests that given relatively efficient markets,the price of a "basket of goods" should be roughly equivalent in each country.

Accepted Answer

A)  random walk theory 
B)  theory of competitive advantage 
C)  theory of price inflation 
D)  purchasing power parity theory 
A)  random walk theory 
B)  theory of competitive advantage 
C)  theory of price inflation 
D)  purchasing power parity theory

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Carry trade is non-speculative in nature.

Accepted Answer

A) True 
 B)False

Question 18

What are the two main functions of the foreign exchange market?

Accepted Answer

A)  Trading of equities of foreign companies and currency conversion 
B)  Reducing currency volatility and setting interest rates 
C)  Insuring companies against interest rate risk and enabling imports and exports 
D)  Currency conversion and providing some insurance against foreign exchange risk 
A)  Trading of equities of foreign companies and currency conversion 
B)  Reducing currency volatility and setting interest rates 
C)  Insuring companies against interest rate risk and enabling imports and exports 
D)  Currency conversion and providing some insurance against foreign exchange risk

Question 19

What is a currency swap?

Accepted Answer

A currency swap is the simultaneous purc

Question 20

_____ is most likely to occur when the value of the domestic currency is depreciating rapidly because of hyperinflation or when a country's economic prospects are shaky in other respects.

Accepted Answer

A)  The random walk effect 
B)  The Fisher Effect 
C)  The International Fisher Effect 
D)  Capital flight 
A)  The random walk effect 
B)  The Fisher Effect 
C)  The International Fisher Effect 
D)  Capital flight

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

When a tourist goes to a bank in a foreign country to convert money into the local currency,the exchange rate used is the forward rate.

If the spot rate is $1 = ¥120,and the 30-day forward rate is $1 = ¥130,the dollar is selling at a discount in the forward market.

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

Assume that the current exchange rate is €1 = $1.50.If you exchange 1,000 euros for dollars,you will receive _____.

What is countertrade? Why would a firm engage in countertrade?

The Fisher Effect states that a country's "real" rate of interest is the sum of the "nominal" interest rate and the expected rate of inflation over the period for which the funds are to be lent.

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

Explain the notion of economic exposure.How can economic exposure be minimized?

Compare and contrast currencies that are freely convertible,externally convertible,and nonconvertible.

When two parties agree to exchange currency and execute the deal at some specific time in the future,a forward exchange occurs.

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it,what will happen?

The _____ suggests that given relatively efficient markets,the price of a "basket of goods" should be roughly equivalent in each country.

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

Carry trade is non-speculative in nature.

What are the two main functions of the foreign exchange market?

What is a currency swap?

_____ is most likely to occur when the value of the domestic currency is depreciating rapidly because of hyperinflation or when a country's economic prospects are shaky in other respects.

Globalization

National Differences in Political Economy

Political Economy and Economic Development

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 Global Capital Market

The Strategy of International Business

The Organization of International Business

Entry Strategy and Strategic Alliances

Exporting, Importing, and Countertrade

Global Production, Outsourcing, and Logistics

Global Marketing and RD

Global Human Resource Management

Accounting and Finance in the International Business

Filters

Exam 10: The Foreign Exchange Market

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

When a tourist goes to a bank in a foreign country to convert money into the local currency,the exchange rate used is the forward rate.

If the spot rate is $1 = ¥120,and the 30-day forward rate is $1 = ¥130,the dollar is selling at a discount in the forward market.

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

Assume that the current exchange rate is €1 = $1.50.If you exchange 1,000 euros for dollars,you will receive _____.

What is countertrade? Why would a firm engage in countertrade?

The Fisher Effect states that a country's "real" rate of interest is the sum of the "nominal" interest rate and the expected rate of inflation over the period for which the funds are to be lent.

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

Explain the notion of economic exposure.How can economic exposure be minimized?

Compare and contrast currencies that are freely convertible,externally convertible,and nonconvertible.

When two parties agree to exchange currency and execute the deal at some specific time in the future,a forward exchange occurs.

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it,what will happen?

The _____ suggests that given relatively efficient markets,the price of a "basket of goods" should be roughly equivalent in each country.

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

Carry trade is non-speculative in nature.

What are the two main functions of the foreign exchange market?

What is a currency swap?

_____ is most likely to occur when the value of the domestic currency is depreciating rapidly because of hyperinflation or when a country's economic prospects are shaky in other respects.

Globalization

National Differences in Political Economy

Political Economy and Economic Development

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 Global Capital Market

The Strategy of International Business

The Organization of International Business

Entry Strategy and Strategic Alliances

Exporting, Importing, and Countertrade

Global Production, Outsourcing, and Logistics

Global Marketing and RD

Global Human Resource Management

Accounting and Finance in the International Business

Filters