Question 1

Which of the following is a reason for London's dominance in the foreign exchange market?

Accepted Answer

A) Great Britain's decision to retain the British pound instead of using the euro 
B) The preeminence of Financial Times Stock Exchange (FTS
E) index as an economic health indicator 
C) London's location making it the link between the East Asian and New York markets 
D) London being the preferred headquarters destination for major multinational corporations 
E) London's trading centers opening soon after Tokyo's and New York's trading centers closing for the night 
A) Great Britain's decision to retain the British pound instead of using the euro 
B) The preeminence of Financial Times Stock Exchange (FTS
E) index as an economic health indicator 
C) London's location making it the link between the East Asian and New York markets 
D) London being the preferred headquarters destination for major multinational corporations 
E) London's trading centers opening soon after Tokyo's and New York's trading centers closing for the night C

Question 2

Currency swaps are transacted between international businesses and their banks,between banks,and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Accepted Answer

A) True 
 B)False  True

Question 3

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is ×120 = $1,and the New York yen/dollar exchange rate at the same time (10 a.m.New York time)is ×123 = $1.Which of the following transactions would yield immediate profit?

Accepted Answer

A) forward exchange 
B) carry trade 
C) currency swap 
D) arbitrage 
E) currency speculation 
A) forward exchange 
B) carry trade 
C) currency swap 
D) arbitrage 
E) currency speculation D

Question 4

To express the PPP theory in symbols,let P$ be the U.S.dollar price of a basket of particular goods and P× be the price of the same basket of goods in Japanese yen.What does the purchasing power parity (PPP)theory predict to be the equivalent of the dollar/yen exchange rate,E$/×?

Accepted Answer

A) E$/× = (1 + P×)/P$ 
B) E$/× = (1 + P$)/P× 
C) E$/× = P×/P$ 
D) E$/× = P$/P× 
E) E$/× = (1 + P$)/(1 + P×) 
A) E$/× = (1 + P×)/P$ 
B) E$/× = (1 + P$)/P× 
C) E$/× = P×/P$ 
D) E$/× = P$/P× 
E) E$/× = (1 + P$)/(1 + P×)

Question 5

The yen/dollar exchange rate is ×120 = $1 in London and ×123 = $1 in New York at the same time.What is the net profit if a dealer takes $1,000,000 to purchase ×123,000,000 in New York and engages in arbitrage by selling it in London?

Accepted Answer

A) $34,000 
B) $20,390 
C) $25,000 
D) $46,666 
E) $39,454 
A) $34,000 
B) $20,390 
C) $25,000 
D) $46,666 
E) $39,454

Question 6

Which of the following indicates that the dollar is selling at a discount on the 30-day forward market?

Accepted Answer

A) The spot exchange rate is $1 = ×120 currently and $1 = ×130 after 30 days. 
B) The spot exchange rate is $1 = ×120 currently and $1 = ×100 after 30 days. 
C) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×110 after 30 days. 
D) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×130 after 30 days. 
E) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×120 after 30 days. 
A) The spot exchange rate is $1 = ×120 currently and $1 = ×130 after 30 days. 
B) The spot exchange rate is $1 = ×120 currently and $1 = ×100 after 30 days. 
C) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×110 after 30 days. 
D) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×130 after 30 days. 
E) The current spot exchange rate is $1 = ×120 and the 30-day forward rate is $1 = ×120 after 30 days.

Question 7

Which of the following is true of the differences in relative demand and supply of currencies?

Accepted Answer

A) They cannot be used to explain the determination of exchange rates. 
B) While they provide an understanding of the major factors underlying exchange rates,they exclude minor factors. 
C) They provide a high-level understanding of exchange rates. 
D) While they provide an accurate explanation for appreciation of currencies,they fail to explain depreciation. 
E) They cannot explain or predict when the demand of a particular currency would exceed its supply and vice versa. 
A) They cannot be used to explain the determination of exchange rates. 
B) While they provide an understanding of the major factors underlying exchange rates,they exclude minor factors. 
C) They provide a high-level understanding of exchange rates. 
D) While they provide an accurate explanation for appreciation of currencies,they fail to explain depreciation. 
E) They cannot explain or predict when the demand of a particular currency would exceed its supply and vice versa.

Question 8

The law of one price states that

Accepted Answer

A) by comparing the prices of identical products in different currencies,it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient. 
B) a country's "nominal" interest rate (i)is the sum of the required "real" rate of interest (r)and the expected rate of inflation over the period for which the funds are to be lent (I). 
C) a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower. 
D) when the growth in a country's money supply is faster than the growth in its output,price inflation is fueled. 
E) in competitive markets free of transportation costs and trade barriers,identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. 
A) by comparing the prices of identical products in different currencies,it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient. 
B) a country's "nominal" interest rate (i)is the sum of the required "real" rate of interest (r)and the expected rate of inflation over the period for which the funds are to be lent (I). 
C) a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower. 
D) when the growth in a country's money supply is faster than the growth in its output,price inflation is fueled. 
E) in competitive markets free of transportation costs and trade barriers,identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

Question 9

In terms of foreign exchange,which of the following is true of leading and lagging strategies?

Accepted Answer

A) They primarily protect long-term cash flows from adverse changes in exchange rates. 
B) They are used to minimize economic exposure of companies. 
C) They can help firms minimize their transaction and translation exposure. 
D) They involve accelerating payments from strong-currency to weak-currency countries. 
E) They are limited by governments because they create pressure on strong currencies. 
A) They primarily protect long-term cash flows from adverse changes in exchange rates. 
B) They are used to minimize economic exposure of companies. 
C) They can help firms minimize their transaction and translation exposure. 
D) They involve accelerating payments from strong-currency to weak-currency countries. 
E) They are limited by governments because they create pressure on strong currencies.

Question 10

A country's currency is referred to as _____ when its government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

Accepted Answer

A) externally convertible 
B) nonconvertible 
C) leading 
D) freely convertible 
E) lagging 
A) externally convertible 
B) nonconvertible 
C) leading 
D) freely convertible 
E) lagging

Question 11

Spot exchange rates and the 30-day forward rates are the same.

Accepted Answer

A) True 
 B)False

Question 12

Differentiate between a lead strategy and a lag strategy.

Accepted Answer

A number of tactics can help firms minim

Question 13

A lead strategy involves

Accepted Answer

A) delaying foreign currency payables when a currency is expected to appreciate. 
B) delaying foreign currency payables when a currency is expected to depreciate. 
C) attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate. 
D) attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. 
E) delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate. 
A) delaying foreign currency payables when a currency is expected to appreciate. 
B) delaying foreign currency payables when a currency is expected to depreciate. 
C) attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate. 
D) attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. 
E) delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate.

Question 14

Briefly describe the tactics and strategies that organizations should use to minimize foreign exchange exposure.

Accepted Answer

A firm needs to develop a mechanism for

Question 15

According to the Fisher effect,if the "real" rate of interest in a country is 4 percent and the expected annual inflation is 9 percent,what would the "nominal" interest rate be?

Accepted Answer

A) 5 percent 
B) 13 percent 
C) 9 percent 
D) 36 percent 
E) 2.25 percent 
A) 5 percent 
B) 13 percent 
C) 9 percent 
D) 36 percent 
E) 2.25 percent

Question 16

The integration of financial centers implies there can be no significant difference in exchange rates quoted in the foreign exchange trading centers.

Accepted Answer

A) True 
 B)False

Question 17

Tom boasts that he is often one of the first buyers of any new technology product.Tom saw a new Apple watch at the Amsterdam airport when he was hurrying to catch a flight back home to New York.Tom saw that the watch sold for 100 Euros.Tom did not have time to buy the watch in Amsterdam.Assume that the euro/dollar exchange rate is €1 = $1.20.According to the law of one price,at what price would it make sense to buy the watch in New York?

Accepted Answer

A) $150 
B) $140 
C) $120 
D) $125 
E) $150. 
A) $150 
B) $140 
C) $120 
D) $125 
E) $150.

Question 18

In countries where inflation is expected to be high,interest rates also will be high.

Accepted Answer

A) True 
 B)False

Question 19

When residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency,the phenomenon is generally referred to as capital flight.

Accepted Answer

A) True 
 B)False

Question 20

The foreign exchange market offers complete insurance against foreign exchange risk.

Accepted Answer

A) True 
 B)False

Which of the following is a reason for London's dominance in the foreign exchange market?

Currency swaps are transacted between international businesses and their banks,between banks,and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is ×120 = $1,and the New York yen/dollar exchange rate at the same time (10 a.m.New York time)is ×123 = $1.Which of the following transactions would yield immediate profit?

To express the PPP theory in symbols,let P_$ be the U.S.dollar price of a basket of particular goods and P_× be the price of the same basket of goods in Japanese yen.What does the purchasing power parity (PPP)theory predict to be the equivalent of the dollar/yen exchange rate,E_$/×?

The yen/dollar exchange rate is ×120 = $1 in London and ×123 = $1 in New York at the same time.What is the net profit if a dealer takes $1,000,000 to purchase ×123,000,000 in New York and engages in arbitrage by selling it in London?

Which of the following indicates that the dollar is selling at a discount on the 30-day forward market?

Which of the following is true of the differences in relative demand and supply of currencies?

The law of one price states that

In terms of foreign exchange,which of the following is true of leading and lagging strategies?

A country's currency is referred to as _____ when its government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

Spot exchange rates and the 30-day forward rates are the same.

Differentiate between a lead strategy and a lag strategy.

A lead strategy involves

Briefly describe the tactics and strategies that organizations should use to minimize foreign exchange exposure.

According to the Fisher effect,if the "real" rate of interest in a country is 4 percent and the expected annual inflation is 9 percent,what would the "nominal" interest rate be?

The integration of financial centers implies there can be no significant difference in exchange rates quoted in the foreign exchange trading centers.

In countries where inflation is expected to be high,interest rates also will be high.

When residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency,the phenomenon is generally referred to as capital flight.

The foreign exchange market offers complete insurance against foreign exchange risk.

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Strategy of International Business

Entering Foreign Markets

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and Research and Development

Global Human Resource Management

Filters

Exam 10: The Foreign Exchange Market

Which of the following is a reason for London's dominance in the foreign exchange market?

Currency swaps are transacted between international businesses and their banks,between banks,and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is ×120 = $1,and the New York yen/dollar exchange rate at the same time (10 a.m.New York time)is ×123 = $1.Which of the following transactions would yield immediate profit?

To express the PPP theory in symbols,let P$ be the U.S.dollar price of a basket of particular goods and P× be the price of the same basket of goods in Japanese yen.What does the purchasing power parity (PPP)theory predict to be the equivalent of the dollar/yen exchange rate,E$/×?

The yen/dollar exchange rate is ×120 = $1 in London and ×123 = $1 in New York at the same time.What is the net profit if a dealer takes $1,000,000 to purchase ×123,000,000 in New York and engages in arbitrage by selling it in London?

Which of the following indicates that the dollar is selling at a discount on the 30-day forward market?

Which of the following is true of the differences in relative demand and supply of currencies?

The law of one price states that

In terms of foreign exchange,which of the following is true of leading and lagging strategies?

A country's currency is referred to as _____ when its government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

Spot exchange rates and the 30-day forward rates are the same.

Differentiate between a lead strategy and a lag strategy.

A lead strategy involves

Briefly describe the tactics and strategies that organizations should use to minimize foreign exchange exposure.

According to the Fisher effect,if the "real" rate of interest in a country is 4 percent and the expected annual inflation is 9 percent,what would the "nominal" interest rate be?

The integration of financial centers implies there can be no significant difference in exchange rates quoted in the foreign exchange trading centers.

In countries where inflation is expected to be high,interest rates also will be high.

When residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency,the phenomenon is generally referred to as capital flight.

The foreign exchange market offers complete insurance against foreign exchange risk.

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Strategy of International Business

Entering Foreign Markets

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and Research and Development

Global Human Resource Management

Filters

To express the PPP theory in symbols,let P_$ be the U.S.dollar price of a basket of particular goods and P_× be the price of the same basket of goods in Japanese yen.What does the purchasing power parity (PPP)theory predict to be the equivalent of the dollar/yen exchange rate,E_$/×?