Exam 10: The Foreign Exchange Market

According to the law of one price,if the exchange rate between the British pound and the dollar is £1 = $1.50,a shirt that retails for $120 in New York should sell for _____ in London.

A spot exchange rate is quoted for 30 days,90 days,and 180 days into the future.

Consider the role of investor psychology and bandwagon effects on how well PPP and the International Fisher Effect explain short-term movements in exchange rates.

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.

Assume that an American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for a period of two months.Which of the following,if it happens during the next two months,would imply that the company will earn less than 8 percent on its investment?

The _____ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

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

If the spot exchange rate is £1=$1.50 when the market opens,and £1=$1.48 at the end of the day,the pound has appreciated,and the dollar has depreciated.

What are the main uses of foreign exchange markets for international business?

Which of the following occurs when traders start moving as a herd in the same direction at the same time?

What is the law of one price?

The PPP theory tells us that a country with a high inflation rate will see depreciation in its currency exchange rate.

International businesses use foreign exchange markets for all of the following reasons except:

The most important trading centers for currencies are Zurich,Frankfurt,Paris,Hong Kong,and Sydney.

A currency swap deal enables companies to insure themselves against foreign exchange risk.

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

The _____ 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.

A pair of shoes costs £40 in Britain.An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50.Which of the following is correct?

The rate at which one currency is converted into another is known as the fluctuation rate.

A currency swap is the rate at which a foreign exchange dealer converts one currency into another on a particular day.