Exam 10: The Foreign Exchange Market

Explain the difference between fundamental analysis and technical analysis.

The _____ states that for any two countries,the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

Discuss the failure of PPP theory to predict exchange rates accurately.What is the purchasing power puzzle?

With the help of an example,explain how a tourist participates in the foreign exchange market.

Transaction exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

A lag 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.

The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values is known as:

If a country has an externally convertible currency,neither residents nor nonresidents are allowed to convert it into a foreign currency.

The International Fisher Effect states that for any two countries,the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates for the two countries.

Inflation occurs when output increases faster than the money supply.

The foreign exchange market is a global network of banks,brokers,and foreign exchange dealers connected by electronic communications systems.

Assuming the 30-day forward exchange rate were $1 = ¥130 and the spot exchange rate were $1 = ¥120,the dollar is selling at a _____ on the 30-day forward market.

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

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

What is meant by the phrases 'the dollar is selling at a discount' on the 30-day forward market and 'the dollar is selling at a premium' on the 30-day forward market?

If the law of one price were true for all goods and services,the purchasing power parity (PPP)exchange rate could be found from any individual set of prices.

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.

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.

Identify the incorrect statement about the PPP theory.

The foreign exchange market is a market for converting the currency of one country into that of another country.