Question 1

Which of the following is an appropriate definition of a currency swap?

Accepted Answer

A) A swap used to hedge against exchange rate risk from mismatched currencies on assets and liabilities. 
B) A swap used to hedge against the general depreciation of a currency. 
C) A swap used to hedge against the general appreciation of a currency. 
D) A swap used to speculate on the depreciation or appreciation of a currency. 
A) A swap used to hedge against exchange rate risk from mismatched currencies on assets and liabilities. 
B) A swap used to hedge against the general depreciation of a currency. 
C) A swap used to hedge against the general appreciation of a currency. 
D) A swap used to speculate on the depreciation or appreciation of a currency.

Question 2

The interest rate parity theorem implies that by hedging in the forward exchange rate market, an investor realises the same returns whether investing domestically or in a foreign country.

Accepted Answer

A) True 
 B)False

Question 3

Good managers can know in advance what exchange rates will be at the end of a particular time horizon.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following FX trading activities is used for purposes of speculation?

Accepted Answer

A) The purchase and sale of foreign currencies for the purpose of profiting from forecasting or anticipating future movements in FX rates. 
B) The purchase and sale of foreign currencies to allow customers to partake in and complete international commercial trade transactions. 
C) The purchase and sale of foreign currencies for the purpose of offsetting customer exposure in any given currency. 
D) The purchase and sale of foreign currencies to allow customers to take positions in foreign real and financial investments. 
A) The purchase and sale of foreign currencies for the purpose of profiting from forecasting or anticipating future movements in FX rates. 
B) The purchase and sale of foreign currencies to allow customers to partake in and complete international commercial trade transactions. 
C) The purchase and sale of foreign currencies for the purpose of offsetting customer exposure in any given currency. 
D) The purchase and sale of foreign currencies to allow customers to take positions in foreign real and financial investments.

Question 5

Assume an FI holds US$250 000 in assets and US$350 000 in liabilities.Which of the following statements is true?

Accepted Answer

A) The FI has a net long in US$. 
B) The FI has a net short in US$. 
C) The FI has a net exposure of US$100 000. 
D) The FI has a net exposure of -US$100 000. 
A) The FI has a net long in US$. 
B) The FI has a net short in US$. 
C) The FI has a net exposure of US$100 000. 
D) The FI has a net exposure of -US$100 000.

Question 6

Which of the following statements is true?

Accepted Answer

A) Net exposure refers to the degree to which a bank is net long (negative) or net short (positive) in a given currency. 
B) Gross exposure refers to the degree to which a bank is net long (negative) or net short (positive) in a given currency. 
C) Net exposure refers to the degree to which a bank is net long (positive) or net short (negative) in a given currency. 
D) Gross exposure refers to the degree to which a bank is net long (positive) or net short (negative) in a given currency. 
A) Net exposure refers to the degree to which a bank is net long (negative) or net short (positive) in a given currency. 
B) Gross exposure refers to the degree to which a bank is net long (negative) or net short (positive) in a given currency. 
C) Net exposure refers to the degree to which a bank is net long (positive) or net short (negative) in a given currency. 
D) Gross exposure refers to the degree to which a bank is net long (positive) or net short (negative) in a given currency.

Question 7

Which of the following statements is true?

Accepted Answer

A) The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be large. 
B) The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be non-existent. 
C) The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be small. 
D) None of the listed options are correct. 
A) The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be large. 
B) The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be non-existent. 
C) The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be small. 
D) None of the listed options are correct.

Question 8

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities.Further, the FI has bought US$40 000 and sold US$20 000.What is the net exposure of the Australian FI?

Accepted Answer

A) -US$20 000 
B) -US$80 000 
C) US$20 000 
D) US$80 000 
A) -US$20 000 
B) -US$80 000 
C) US$20 000 
D) US$80 000

Question 9

An FI usually creates an open position by taking an unhedged position in a foreign currency in its FX trading with other FIs.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is the largest market for FX?

Accepted Answer

A) Tokyo 
B) London 
C) New York 
D) Berlin. 
A) Tokyo 
B) London 
C) New York 
D) Berlin.

Question 11

On-balance-sheet hedging involves taking positions in forward or other derivative securities to hedge FX risk.

Accepted Answer

A) True 
 B)False

Question 12

Assume an FI sells A$100 million for US$ on the spot currency markets at an exchange rate of A$1.20 to $US1.00.What is the US$ value of the investment (round to two decimals)?

Accepted Answer

A) $100 million * $1.2 = US$120 000.00 million 
B) $100 million / $1.2 = US$83 333.33 million 
C) $100 million / ($1.2 - US$1.0) = US$500 000.00 million 
D) $100 million * ($1.2 - US$1.0) = US$20 000.00 million 
A) $100 million * $1.2 = US$120 000.00 million 
B) $100 million / $1.2 = US$83 333.33 million 
C) $100 million / ($1.2 - US$1.0) = US$500 000.00 million 
D) $100 million * ($1.2 - US$1.0) = US$20 000.00 million

Question 13

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities.Further, the FI has bought US$40 000 and sold US$20 000.What is the net foreign asset of the Australian FI?

Accepted Answer

A) -US$100 000 
B) -US$80 000 
C) US$80 000 
D) US$100 000 
A) -US$100 000 
B) -US$80 000 
C) US$80 000 
D) US$100 000

Question 14

Which of the following statements is true?

Accepted Answer

A) The reason why in a currency swap it is usual to include both principal and interest payments as part of the swap agreement is that both principal and interest are exposed to foreign exchange risk. 
B) In a currency swap it is usual to include both principal and interest payments as part of the swap agreement as this makes the currency conversion less complex. 
C) In a currency swap it is usual to include both principal and interest payments as part of the swap agreement as otherwise it is impossible to value the swap. 
D) It is not usual to include both principal and interest payments as part of the swap agreement. 
A) The reason why in a currency swap it is usual to include both principal and interest payments as part of the swap agreement is that both principal and interest are exposed to foreign exchange risk. 
B) In a currency swap it is usual to include both principal and interest payments as part of the swap agreement as this makes the currency conversion less complex. 
C) In a currency swap it is usual to include both principal and interest payments as part of the swap agreement as otherwise it is impossible to value the swap. 
D) It is not usual to include both principal and interest payments as part of the swap agreement.

Question 15

Which of the following statements is true?

Accepted Answer

A) Conceptually, an FX rate will appreciate in value relative to other currencies when demand is high. 
B) Conceptually, an FX rate will appreciate in value relative to other currencies when supply is low. 
C) Conceptually, an FX rate will depreciate in value relative to other currencies when demand is low. 
D) All of the listed options are correct. 
A) Conceptually, an FX rate will appreciate in value relative to other currencies when demand is high. 
B) Conceptually, an FX rate will appreciate in value relative to other currencies when supply is low. 
C) Conceptually, an FX rate will depreciate in value relative to other currencies when demand is low. 
D) All of the listed options are correct.

Question 16

Which of the following statements is true?

Accepted Answer

A) By directly matching its foreign asset and liability book, an FI can lock in a positive return on profit spread if exchange rates rise over the investment period. 
B) By directly matching its foreign asset and liability book, an FI can lock in a positive return on profit spread if exchange rates fall over the investment period. 
C) By directly matching its foreign asset and liability book, an FI can lock in a positive return on profit spread whichever direction exchange rates change over the investment period. 
D) By directly matching its foreign asset and liability book, an FI holds a neutral position, i.e.earnings equalling zero, whichever direction exchange rates change over the investment period. 
A) By directly matching its foreign asset and liability book, an FI can lock in a positive return on profit spread if exchange rates rise over the investment period. 
B) By directly matching its foreign asset and liability book, an FI can lock in a positive return on profit spread if exchange rates fall over the investment period. 
C) By directly matching its foreign asset and liability book, an FI can lock in a positive return on profit spread whichever direction exchange rates change over the investment period. 
D) By directly matching its foreign asset and liability book, an FI holds a neutral position, i.e.earnings equalling zero, whichever direction exchange rates change over the investment period.

Question 17

Which of the following statements is true?

Accepted Answer

A) An open position is a hedged position in a particular currency. 
B) An open position is an unhedged position in a particular currency. 
C) An open position is an unhedged position in an open market. 
D) An open position is a hedged position in an open market. 
A) An open position is a hedged position in a particular currency. 
B) An open position is an unhedged position in a particular currency. 
C) An open position is an unhedged position in an open market. 
D) An open position is a hedged position in an open market.

Question 18

An FI's net exposure can be measured as:

Accepted Answer

A) (FX liabilitiesi - FX assetsi) + (FX boughti - FX soldi) 
B) (FX liabilitiesi - FX assetsi) + (FX soldi - FX boughti) 
C) (FX assetsi - FX liabilitiesi) + (FX soldi - FX boughti) 
D) (FX assetsi - FX liabilitiesi) + (FX boughti - FX soldi) 
A) (FX liabilitiesi - FX assetsi) + (FX boughti - FX soldi) 
B) (FX liabilitiesi - FX assetsi) + (FX soldi - FX boughti) 
C) (FX assetsi - FX liabilitiesi) + (FX soldi - FX boughti) 
D) (FX assetsi - FX liabilitiesi) + (FX boughti - FX soldi)

Question 19

Which of the following statements is true?

Accepted Answer

A) FX trading is becoming increasingly popular globally. 
B) FX trading has become redundant due to stable foreign exchange rates. 
C) FX trading is a popular tool to generate profits, as there is little risk involved. 
D) The number of FX traders has decreased over the years due to merger activities and as a consequence the number of FX transactions has decreased over time. 
A) FX trading is becoming increasingly popular globally. 
B) FX trading has become redundant due to stable foreign exchange rates. 
C) FX trading is a popular tool to generate profits, as there is little risk involved. 
D) The number of FX traders has decreased over the years due to merger activities and as a consequence the number of FX transactions has decreased over time.

Question 20

Which of the following is an example of interest rate parity?

Accepted Answer

A) The Japanese yen trades at the same exchange rate as the Swiss franc. 
B) US dollar rates on one-year US Treasury securities equal one-year Japanese government bond rates. 
C) US dollar rates on one-year US Treasury securities equal one-year Japanese government bond rates, restated in dollars. 
D) British pound two-year forward rates equal two-year Swiss franc forward rates. 
A) The Japanese yen trades at the same exchange rate as the Swiss franc. 
B) US dollar rates on one-year US Treasury securities equal one-year Japanese government bond rates. 
C) US dollar rates on one-year US Treasury securities equal one-year Japanese government bond rates, restated in dollars. 
D) British pound two-year forward rates equal two-year Swiss franc forward rates.

Which of the following is an appropriate definition of a currency swap?

The interest rate parity theorem implies that by hedging in the forward exchange rate market, an investor realises the same returns whether investing domestically or in a foreign country.

Good managers can know in advance what exchange rates will be at the end of a particular time horizon.

Which of the following FX trading activities is used for purposes of speculation?

Assume an FI holds US$250 000 in assets and US$350 000 in liabilities.Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities.Further, the FI has bought US$40 000 and sold US$20 000.What is the net exposure of the Australian FI?

An FI usually creates an open position by taking an unhedged position in a foreign currency in its FX trading with other FIs.

Which of the following is the largest market for FX?

On-balance-sheet hedging involves taking positions in forward or other derivative securities to hedge FX risk.

Assume an FI sells A$100 million for US$ on the spot currency markets at an exchange rate of A$1.20 to $US1.00.What is the US$ value of the investment (round to two decimals)?

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities.Further, the FI has bought US$40 000 and sold US$20 000.What is the net foreign asset of the Australian FI?

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

An FI's net exposure can be measured as:

Which of the following statements is true?

Which of the following is an example of interest rate parity?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: The Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 13: Foreign Exchange Risk

Which of the following is an appropriate definition of a currency swap?

The interest rate parity theorem implies that by hedging in the forward exchange rate market, an investor realises the same returns whether investing domestically or in a foreign country.

Good managers can know in advance what exchange rates will be at the end of a particular time horizon.

Which of the following FX trading activities is used for purposes of speculation?

Assume an FI holds US$250 000 in assets and US$350 000 in liabilities.Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities.Further, the FI has bought US$40 000 and sold US$20 000.What is the net exposure of the Australian FI?

An FI usually creates an open position by taking an unhedged position in a foreign currency in its FX trading with other FIs.

Which of the following is the largest market for FX?

On-balance-sheet hedging involves taking positions in forward or other derivative securities to hedge FX risk.

Assume an FI sells A$100 million for US$ on the spot currency markets at an exchange rate of A$1.20 to $US1.00.What is the US$ value of the investment (round to two decimals)?

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities.Further, the FI has bought US$40 000 and sold US$20 000.What is the net foreign asset of the Australian FI?

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

Which of the following statements is true?

An FI's net exposure can be measured as:

Which of the following statements is true?

Which of the following is an example of interest rate parity?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: The Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters