Question 1

The impact of currency exchange rates on the reported financial statements of a company is called economic exposure.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  PPP theory 
B)  efficient market theory 
C)  law of one price 
D)  Fisher Effect 
A)  PPP theory 
B)  efficient market theory 
C)  law of one price 
D)  Fisher Effect

Question 3

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Accepted Answer

A)  Currency pairing 
B)  Carry trade 
C)  Currency exchange 
D)  Currency swap 
A)  Currency pairing 
B)  Carry trade 
C)  Currency exchange 
D)  Currency swap

Question 4

Compare and contrast the Fisher Effect and the International Fisher Effect.

Accepted Answer

The Fisher Effect was put forth by Irvin

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is referred to as the purchasing power parity puzzle?

Accepted Answer

A)  Reduced levels of inflation in countries where the growth in the money supply is faster than the growth in its output. 
B)  The reason why countries with high inflation rates see depreciation in their currency exchange rates. 
C)  Identical products being sold in different countries for the same price when their price is expressed in terms of the same currency. 
D)  The failure to find a strong link between relative inflation rates and exchange rate movements. 
A)  Reduced levels of inflation in countries where the growth in the money supply is faster than the growth in its output. 
B)  The reason why countries with high inflation rates see depreciation in their currency exchange rates. 
C)  Identical products being sold in different countries for the same price when their price is expressed in terms of the same currency. 
D)  The failure to find a strong link between relative inflation rates and exchange rate movements.

Question 7

The risk that arises from volatile changes in exchange rates is known as foreign exchange risk.

Accepted Answer

A) True 
 B)False

Question 8

Arbitrage opportunities abound in the foreign exchange markets and they tend to be available for long periods of time.

Accepted Answer

A) True 
 B)False

Question 9

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

Accepted Answer

A) True 
 B)False

Question 10

_____ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services.

Accepted Answer

A)  Countertrade 
B)  Carry trade 
C)  Dumping 
D)  Capital flight 
A)  Countertrade 
B)  Carry trade 
C)  Dumping 
D)  Capital flight

Question 11

_____ are exchange rates governing some specific future date foreign exchange transactions.

Accepted Answer

A)  Spot exchange rates 
B)  Forward exchange rates 
C)  Future exchange rates 
D)  Currency swaps 
A)  Spot exchange rates 
B)  Forward exchange rates 
C)  Future exchange rates 
D)  Currency swaps

Question 12

The PPP theory argues that the exchange rate will change even if relative prices remain unchanged.

Accepted Answer

A) True 
 B)False

Question 13

The _____ helps us to compare the relative prices of goods and services in different countries.

Accepted Answer

A)  interest rate 
B)  GDP growth rate 
C)  exchange rate 
D)  tariff rate 
A)  interest rate 
B)  GDP growth rate 
C)  exchange rate 
D)  tariff rate

Question 14

Which of the following would a follower of the inefficient market school of thought agree with?

Accepted Answer

A)  Companies would be better off investing in foreign exchange forecasting services. 
B)  Forward exchange rates do the best possible job of forecasting future spot exchange rates. 
C)  Companies can optimize their foreign exchange transactions by using forward markets. 
D)  Forward rates reflect all available information about likely future changes in exchange rates. 
A)  Companies would be better off investing in foreign exchange forecasting services. 
B)  Forward exchange rates do the best possible job of forecasting future spot exchange rates. 
C)  Companies can optimize their foreign exchange transactions by using forward markets. 
D)  Forward rates reflect all available information about likely future changes in exchange rates.

Question 15

How can a firm minimize its foreign exchange exposure?

Accepted Answer

There are several strategies a firm can

Question 16

What is the difference between a spot exchange rate and a forward exchange rate?

Accepted Answer

The spot exchange rate is the rate at wh

Question 17

The foreign exchange market is open for only 12 hours in a day.

Accepted Answer

A) True 
 B)False

Question 18

Discuss the two schools of thought on exchange rate forecasting.

Accepted Answer

There are two schools of thought on whet

Question 19

A currency is said to be freely convertible when:

Accepted Answer

A)  its exchange rate with respect to other currencies is decided by the central bank of the country. 
B)  residents alone are allowed to convert it into a foreign currency without any limitations. 
C)  neither residents nor nonresidents are allowed to convert it into a foreign currency. 
D)  both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it. 
A)  its exchange rate with respect to other currencies is decided by the central bank of the country. 
B)  residents alone are allowed to convert it into a foreign currency without any limitations. 
C)  neither residents nor nonresidents are allowed to convert it into a foreign currency. 
D)  both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it.

Question 20

Assume that the law of one price holds.A shirt that retails for $120 in New York sells for £60 in London.The exchange rate between the British pound and the dollar is £1 = $1.50.Assuming away transportation costs and trade barriers,this creates a profit-making opportunity called _____.

Accepted Answer

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

The impact of currency exchange rates on the reported financial statements of a company is called economic exposure.

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

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Compare and contrast the Fisher Effect and the International Fisher Effect.

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

Which of the following is referred to as the purchasing power parity puzzle?

The risk that arises from volatile changes in exchange rates is known as foreign exchange risk.

Arbitrage opportunities abound in the foreign exchange markets and they tend to be available for long periods of time.

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

_____ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services.

_____ are exchange rates governing some specific future date foreign exchange transactions.

The PPP theory argues that the exchange rate will change even if relative prices remain unchanged.

The _____ helps us to compare the relative prices of goods and services in different countries.

Which of the following would a follower of the inefficient market school of thought agree with?

How can a firm minimize its foreign exchange exposure?

What is the difference between a spot exchange rate and a forward exchange rate?

The foreign exchange market is open for only 12 hours in a day.

Discuss the two schools of thought on exchange rate forecasting.

A currency is said to be freely convertible when:

Assume that the law of one price holds.A shirt that retails for $120 in New York sells for £60 in London.The exchange rate between the British pound and the dollar is £1 = $1.50.Assuming away transportation costs and trade barriers,this creates a profit-making opportunity called _____.

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

The impact of currency exchange rates on the reported financial statements of a company is called economic exposure.

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

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Compare and contrast the Fisher Effect and the International Fisher Effect.

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

Which of the following is referred to as the purchasing power parity puzzle?

The risk that arises from volatile changes in exchange rates is known as foreign exchange risk.

Arbitrage opportunities abound in the foreign exchange markets and they tend to be available for long periods of time.

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

_____ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services.

_____ are exchange rates governing some specific future date foreign exchange transactions.

The PPP theory argues that the exchange rate will change even if relative prices remain unchanged.

The _____ helps us to compare the relative prices of goods and services in different countries.

Which of the following would a follower of the inefficient market school of thought agree with?

How can a firm minimize its foreign exchange exposure?

What is the difference between a spot exchange rate and a forward exchange rate?

The foreign exchange market is open for only 12 hours in a day.

Discuss the two schools of thought on exchange rate forecasting.

A currency is said to be freely convertible when:

Assume that the law of one price holds.A shirt that retails for $120 in New York sells for £60 in London.The exchange rate between the British pound and the dollar is £1 = $1.50.Assuming away transportation costs and trade barriers,this creates a profit-making opportunity called _____.

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