Question 1

Which of the following is a reason why governments limit convertibility of their currency?

Accepted Answer

A) to encourage foreign investments 
B) to control currency appreciation 
C) to encourage capital flight 
D) to preserve their foreign exchange reserves 
E) to promote neo-mercantilism 
A) to encourage foreign investments 
B) to control currency appreciation 
C) to encourage capital flight 
D) to preserve their foreign exchange reserves 
E) to promote neo-mercantilism

Question 2

Technical analysis,an approach to foreign exchange forecasting,does not rely on a consideration of economic fundamentals.

Accepted Answer

A) True 
 B)False

Question 3

Assume that the exchange rate between the British pound and the U.S.dollar is 1 pound = 2 dollars.An Armani jacket sells for $80 in New York and 40 pounds in London.This is an example of

Accepted Answer

A) hedging 
B) arbitrage. 
C) currency swap. 
D) exchange rate risk. 
E) the law of one price. 
A) hedging 
B) arbitrage. 
C) currency swap. 
D) exchange rate risk. 
E) the law of one price.

Question 4

Which of the following is a step taken to manage foreign exchange risk?

Accepted Answer

A) Firms should focus solely on managing transaction and translation exposures. 
B) Forecasting future exchange rate movements should be avoided as it is speculative. 
C) Firms need to develop strategies for dealing with economic exposure. 
D) Firms should avoid central control of exposure. 
E) Firms should not distinguish between transaction and translation exposure and economic exposure. 
A) Firms should focus solely on managing transaction and translation exposures. 
B) Forecasting future exchange rate movements should be avoided as it is speculative. 
C) Firms need to develop strategies for dealing with economic exposure. 
D) Firms should avoid central control of exposure. 
E) Firms should not distinguish between transaction and translation exposure and economic exposure.

Question 5

The currency of the country of Venadia falls sharply in value against the currency of Lutetia,a neighboring country.Which of the following is a consequence of this exchange rate movement?

Accepted Answer

A) Lutetia's products will achieve a competitive pricing in Venadia. 
B) Venadia's exports to Lutetia will increase,because Venadian goods will become cheaper in Lutetia. 
C) Venadia's products will cost more in Lutetia. 
D) There will be no difference in the volume or direction of trade. 
E) Lutetia's exports to Venadia will increase,because Lutetian goods will become cheaper in Venadia. 
A) Lutetia's products will achieve a competitive pricing in Venadia. 
B) Venadia's exports to Lutetia will increase,because Venadian goods will become cheaper in Lutetia. 
C) Venadia's products will cost more in Lutetia. 
D) There will be no difference in the volume or direction of trade. 
E) Lutetia's exports to Venadia will increase,because Lutetian goods will become cheaper in Venadia.

Question 6

Which of the following observations is true of technical analysis,an approach to exchange rate forecasting?

Accepted Answer

A) It draws on economic theory to construct models for predicting exchange rate movements. 
B) The variables contained in this model typically include relative money supply growth rates,inflation rates,and interest rates. 
C) There is a sound theoretical rationale for the assumption of predictability underlying this approach. 
D) Owing to its drawbacks,this approach has declined in importance over the last few years,giving way to fundamental analysis. 
E) It does not rely on a consideration of economic fundamentals. 
A) It draws on economic theory to construct models for predicting exchange rate movements. 
B) The variables contained in this model typically include relative money supply growth rates,inflation rates,and interest rates. 
C) There is a sound theoretical rationale for the assumption of predictability underlying this approach. 
D) Owing to its drawbacks,this approach has declined in importance over the last few years,giving way to fundamental analysis. 
E) It does not rely on a consideration of economic fundamentals.

Question 7

A(n)_____ is used to move out of one currency and into another for a limited period without incurring foreign exchange risk.

Accepted Answer

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

Question 8

How is a currency classified if only nonresidents may convert it into a foreign currency without any limitations?

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 9

Which of the following enables organizations to conduct international trade without having to resort to barter?

Accepted Answer

A) foreign exchange market 
B) Caribbean Single Market and Economy 
C) auction market 
D) countertrade 
E) balance-of-trade equilibrium 
A) foreign exchange market 
B) Caribbean Single Market and Economy 
C) auction market 
D) countertrade 
E) balance-of-trade equilibrium

Question 10

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

Accepted Answer

A) The spot exchange rate is currently $1 = ×120 and changes to $1 = ×130 after 30 days. 
B) The spot exchange rate is currently $1 = ×120 and changes to $1 = ×110 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. 
A) The spot exchange rate is currently $1 = ×120 and changes to $1 = ×130 after 30 days. 
B) The spot exchange rate is currently $1 = ×120 and changes to $1 = ×110 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.

Question 11

If a basket of goods costs $100 in the United States and €120 in Europe,what would the purchasing power parity theory's prediction of the dollar/euro exchange rate be?

Accepted Answer

A) $1 = €1.20 
B) $1 = €1 
C) $1 = €0.80 
D) $1 = €0.90 
E) $1 = €1.10 
A) $1 = €1.20 
B) $1 = €1 
C) $1 = €0.80 
D) $1 = €0.90 
E) $1 = €1.10

Question 12

What can happen if a country's government does not control the rate of growth in money supply?

Accepted Answer

A) Its future inflation rate will be low. 
B) Its taxes will decrease in the future. 
C) It will see reduced spending on public infrastructure projects. 
D) Its currency could depreciate in the future. 
E) Its output of goods and services will exceed money supply,thereby fueling deflation. 
A) Its future inflation rate will be low. 
B) Its taxes will decrease in the future. 
C) It will see reduced spending on public infrastructure projects. 
D) Its currency could depreciate in the future. 
E) Its output of goods and services will exceed money supply,thereby fueling deflation.

Question 13

_____ is concerned with the present measurement of past events.

Accepted Answer

A) Economic exposure 
B) Transaction exposure 
C) Arbitrage 
D) Translation exposure 
E) Currency speculation 
A) Economic exposure 
B) Transaction exposure 
C) Arbitrage 
D) Translation exposure 
E) Currency speculation

Question 14

In the context of The Economist's "Big Mac Index," assume that the average price of a Big Mac in South Korea is $3.98 at the prevailing won/dollar exchange rate.The average price of a Big Mac in the United States is $4.93.This suggests that the Korean won is overvalued against the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following foreign exchange trading centers has the highest percentage of activity?

Accepted Answer

A) Frankfurt 
B) London 
C) Paris 
D) Hong Kong 
E) Sydney 
A) Frankfurt 
B) London 
C) Paris 
D) Hong Kong 
E) Sydney

Question 16

Omega,Inc.,a U.S.-based firm entered into an agreement with another party to exchange currency and execute the deal at a specific date in the future.What is Omega,Inc.engaging in when it insures itself against foreign exchange risk?

Accepted Answer

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

Question 17

Describe the factors that explain the failure of the purchasing power parity theory to predict exchange rates accurately.

Accepted Answer

Several factors explain the failure of P

Question 18

When a firm enters into a spot exchange contract,it is taking out insurance against adverse future exchange rate movements.

Accepted Answer

A) True 
 B)False

Question 19

The Fisher effect states that

Accepted Answer

A) 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). 
B) by comparing the prices of identical products in different currencies,it is possible to determine the "real" or purchasing power parity exchange rate that would exist if markets were efficient. 
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. 
A) 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). 
B) by comparing the prices of identical products in different currencies,it is possible to determine the "real" or purchasing power parity exchange rate that would exist if markets were efficient. 
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.

Question 20

Companies can deal with the problem of nonconvertibility of currency by engaging in

Accepted Answer

A) price discrimination. 
B) countertrade. 
C) arbitrage. 
D) price skimming. 
E) currency speculation. 
A) price discrimination. 
B) countertrade. 
C) arbitrage. 
D) price skimming. 
E) currency speculation.

Which of the following is a reason why governments limit convertibility of their currency?

Technical analysis,an approach to foreign exchange forecasting,does not rely on a consideration of economic fundamentals.

Assume that the exchange rate between the British pound and the U.S.dollar is 1 pound = 2 dollars.An Armani jacket sells for $80 in New York and 40 pounds in London.This is an example of

Which of the following is a step taken to manage foreign exchange risk?

The currency of the country of Venadia falls sharply in value against the currency of Lutetia,a neighboring country.Which of the following is a consequence of this exchange rate movement?

Which of the following observations is true of technical analysis,an approach to exchange rate forecasting?

A(n)_____ is used to move out of one currency and into another for a limited period without incurring foreign exchange risk.

How is a currency classified if only nonresidents may convert it into a foreign currency without any limitations?

Which of the following enables organizations to conduct international trade without having to resort to barter?

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

If a basket of goods costs $100 in the United States and €120 in Europe,what would the purchasing power parity theory's prediction of the dollar/euro exchange rate be?

What can happen if a country's government does not control the rate of growth in money supply?

_____ is concerned with the present measurement of past events.

In the context of The Economist's "Big Mac Index," assume that the average price of a Big Mac in South Korea is $3.98 at the prevailing won/dollar exchange rate.The average price of a Big Mac in the United States is $4.93.This suggests that the Korean won is overvalued against the U.S.dollar.

Which of the following foreign exchange trading centers has the highest percentage of activity?

Omega,Inc.,a U.S.-based firm entered into an agreement with another party to exchange currency and execute the deal at a specific date in the future.What is Omega,Inc.engaging in when it insures itself against foreign exchange risk?

Describe the factors that explain the failure of the purchasing power parity theory to predict exchange rates accurately.

When a firm enters into a spot exchange contract,it is taking out insurance against adverse future exchange rate movements.

The Fisher effect states that

Companies can deal with the problem of nonconvertibility of currency by engaging in

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

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Exam 10: The Foreign Exchange Market

Which of the following is a reason why governments limit convertibility of their currency?

Technical analysis,an approach to foreign exchange forecasting,does not rely on a consideration of economic fundamentals.

Assume that the exchange rate between the British pound and the U.S.dollar is 1 pound = 2 dollars.An Armani jacket sells for $80 in New York and 40 pounds in London.This is an example of

Which of the following is a step taken to manage foreign exchange risk?

The currency of the country of Venadia falls sharply in value against the currency of Lutetia,a neighboring country.Which of the following is a consequence of this exchange rate movement?

Which of the following observations is true of technical analysis,an approach to exchange rate forecasting?

A(n)_____ is used to move out of one currency and into another for a limited period without incurring foreign exchange risk.

How is a currency classified if only nonresidents may convert it into a foreign currency without any limitations?

Which of the following enables organizations to conduct international trade without having to resort to barter?

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

If a basket of goods costs $100 in the United States and €120 in Europe,what would the purchasing power parity theory's prediction of the dollar/euro exchange rate be?

What can happen if a country's government does not control the rate of growth in money supply?

_____ is concerned with the present measurement of past events.

In the context of The Economist's "Big Mac Index," assume that the average price of a Big Mac in South Korea is $3.98 at the prevailing won/dollar exchange rate.The average price of a Big Mac in the United States is $4.93.This suggests that the Korean won is overvalued against the U.S.dollar.

Which of the following foreign exchange trading centers has the highest percentage of activity?

Omega,Inc.,a U.S.-based firm entered into an agreement with another party to exchange currency and execute the deal at a specific date in the future.What is Omega,Inc.engaging in when it insures itself against foreign exchange risk?

Describe the factors that explain the failure of the purchasing power parity theory to predict exchange rates accurately.

When a firm enters into a spot exchange contract,it is taking out insurance against adverse future exchange rate movements.

The Fisher effect states that

Companies can deal with the problem of nonconvertibility of currency by engaging in

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