Question 1

Which of the following are common FX trading activities?

Accepted Answer

A) The purchase and sale of foreign currencies for speculative purposes through forecasting or anticipating future movements in FX rates. 
B) The purchase and sale of foreign currencies to allow customers (or the FI itself) to take positions in foreign real and financial investments. 
C) The purchase and sale of foreign currencies for hedging purposes to offset customer (or FI) exposure in any given currency. 
D) All of the listed options are correct. 
A) The purchase and sale of foreign currencies for speculative purposes through forecasting or anticipating future movements in FX rates. 
B) The purchase and sale of foreign currencies to allow customers (or the FI itself) to take positions in foreign real and financial investments. 
C) The purchase and sale of foreign currencies for hedging purposes to offset customer (or FI) exposure in any given currency. 
D) All of the listed options are correct.

Question 2

The role of the forward FX contract is to offset the uncertainty regarding the future spot rate on a particular currency at the end of the investment horizon.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is true for an FI that holds €200 000 in assets and €250 000 in liabilities?

Accepted Answer

A) The FI is in a net short position. 
B) The FI has net foreign assets of €50 000. 
C) The FI faces the risk that the euro will fall in value against domestic currency. 
D) All of the listed options are correct. 
A) The FI is in a net short position. 
B) The FI has net foreign assets of €50 000. 
C) The FI faces the risk that the euro will fall in value against domestic currency. 
D) All of the listed options are correct.

Question 4

Spot market for foreign exchange refers to the market in which foreign currency is traded for:

Accepted Answer

A) delivery at an agreed point in time. 
B) delivery in two business days' time. 
C) delivery in one week's time. 
D) immediate delivery. 
A) delivery at an agreed point in time. 
B) delivery in two business days' time. 
C) delivery in one week's time. 
D) immediate delivery.

Question 5

Which of the following statements is true?

Accepted Answer

A) The rate of inflation is the difference between the real interest rate and a nominal interest rate. 
B) The real interest rate is the product of a nominal interest rate and the expected rate of inflation. 
C) The real interest rate is the difference between a nominal interest rate and the expected rate of inflation. 
D) The nominal interest rate is the difference between a real interest rate and the expected rate of inflation. 
A) The rate of inflation is the difference between the real interest rate and a nominal interest rate. 
B) The real interest rate is the product of a nominal interest rate and the expected rate of inflation. 
C) The real interest rate is the difference between a nominal interest rate and the expected rate of inflation. 
D) The nominal interest rate is the difference between a real interest rate and the expected rate of inflation.

Question 6

The interest rate parity theorem implies that while interest rates are hedged, the dollar return on foreign investments can be above or below the return on domestic investments.

Accepted Answer

A) True 
 B)False

Question 7

A positive net exposure position in FX implies that the FI is net:

Accepted Answer

A) long in a currency and exposed to depreciation of the foreign currency. 
B) short in a currency and exposed to depreciation of the foreign currency. 
C) long in a currency and exposed to appreciation of the foreign currency. 
D) short in a currency and exposed to appreciation of the foreign currency. 
A) long in a currency and exposed to depreciation of the foreign currency. 
B) short in a currency and exposed to depreciation of the foreign currency. 
C) long in a currency and exposed to appreciation of the foreign currency. 
D) short in a currency and exposed to appreciation of the foreign currency.

Question 8

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 low. 
B) Conceptually, an FX rate will appreciate in value relative to other currencies when supply is high. 
C) Conceptually, an FX rate will depreciate in value relative to other currencies when demand is low. 
D) Conceptually, an FX rate will appreciate in value relative to other currencies when supply is low. 
A) Conceptually, an FX rate will appreciate in value relative to other currencies when demand is low. 
B) Conceptually, an FX rate will appreciate in value relative to other currencies when supply is high. 
C) Conceptually, an FX rate will depreciate in value relative to other currencies when demand is low. 
D) Conceptually, an FX rate will appreciate in value relative to other currencies when supply is low.

Question 9

Which of the following statements is true?

Accepted Answer

A) In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee and does assume part of the FX risk. 
B) In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee but does not assume any of the FX risk. 
C) In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as a hedger to reduce the FX exposure. 
D) In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee and as a hedger to reduce the FX exposures. 
A) In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee and does assume part of the FX risk. 
B) In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee but does not assume any of the FX risk. 
C) In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as a hedger to reduce the FX exposure. 
D) In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee and as a hedger to reduce the FX exposures.

Question 10

Assume an FI holds US$200 000 in assets and US$150 000 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 $50 000. 
D) The FI has a net exposure of -$50 000. 
A) The FI has a net long in US$. 
B) The FI has a net short in US$. 
C) The FI has a net exposure of $50 000. 
D) The FI has a net exposure of -$50 000.

Question 11

Assume an FI sells A$100 million for US dollars on the spot currency markets at an exchange rate of A$1.10 to US $1.00 and invests the US dollar assets at an interest rate of 12 per cent for one year.What is the Australian dollar proceeds from the US dollar investment (round to two decimals)?

Accepted Answer

A) A$100.00 million 
B) A$112.00 million 
C) A$90.91 million 
D) A$101.82 million 
A) A$100.00 million 
B) A$112.00 million 
C) A$90.91 million 
D) A$101.82 million

Question 12

A net short position exposes an FI to the risk that the foreign currency could rise in value against its domestic currency.

Accepted Answer

A) True 
 B)False

Question 13

An FI that holds more foreign currency liabilities than assets has a net long position.

Accepted Answer

A) True 
 B)False

Question 14

The case of the National Australia Bank shows that:

Accepted Answer

A) FX trading can result in significant losses for an FI. 
B) FX trading losses can result in reputational loss for an FI. 
C) the announcement of FX trading losses can lead to a fall in the share price of the FI at which the losses occurred. 
D) All of the listed options are correct. 
A) FX trading can result in significant losses for an FI. 
B) FX trading losses can result in reputational loss for an FI. 
C) the announcement of FX trading losses can lead to a fall in the share price of the FI at which the losses occurred. 
D) All of the listed options are correct.

Question 15

Explain the concept of the interest rate parity theorem (IRPT) and its implications for FIs?

Accepted Answer

Intuitively, the interest rate parity th

Question 16

In a currency swap it is usual to include both principal and interest payments as part of the swap agreement.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a reason for the decline in FX trading?

Accepted Answer

A) The number of FX traders has decreased due to mergers of investment banks. 
B) Advancements in technology have increased the efficiency of each FX trader, reducing the need for as many. 
C) The move towards a single currency in Europe has reduced the need for FX trading. 
D) All of the listed options are correct. 
A) The number of FX traders has decreased due to mergers of investment banks. 
B) Advancements in technology have increased the efficiency of each FX trader, reducing the need for as many. 
C) The move towards a single currency in Europe has reduced the need for FX trading. 
D) All of the listed options are correct.

Question 18

Which of the following is not a source of foreign exchange risk?

Accepted Answer

A) Trading foreign currencies. 
B) Making domestic-currency loans to foreign corporations. 
C) Buying foreign-issued securities. 
D) Issuing foreign currency-denominated debt. 
A) Trading foreign currencies. 
B) Making domestic-currency loans to foreign corporations. 
C) Buying foreign-issued securities. 
D) Issuing foreign currency-denominated debt.

Question 19

Assume an FI sells $100 million for euros on the spot currency markets at an exchange rate of $1.20 to €1.00 and invests the euro assets at an interest rate of 11 per cent for one year.What is the weighted annual return on the FI's portfolio assuming that the $100 million are 20 per cent of the FI's total assets and that the remaining assets are invested in Australian dollar assets at an average interest rate of 8 per cent p.a.(round to two decimals)?

Accepted Answer

A) 9.50 per cent p.a. 
B) 8.60 per cent p.a. 
C) 20.00 per cent p.a. 
D) 10.40 per cent p.a. 
A) 9.50 per cent p.a. 
B) 8.60 per cent p.a. 
C) 20.00 per cent p.a. 
D) 10.40 per cent p.a.

Question 20

Which of the following statements is true?

Accepted Answer

A) Foreign exchange rate is the exchange rate agreed to today for future delivery of a currency. 
B) Future exchange rate is the exchange rate agreed to today for future delivery of a currency. 
C) Forward exchange rate is the exchange rate agreed to today for future delivery of a currency. 
D) Future exchange rate is the exchange rate agreed to today for future delivery of a currency futures contract. 
A) Foreign exchange rate is the exchange rate agreed to today for future delivery of a currency. 
B) Future exchange rate is the exchange rate agreed to today for future delivery of a currency. 
C) Forward exchange rate is the exchange rate agreed to today for future delivery of a currency. 
D) Future exchange rate is the exchange rate agreed to today for future delivery of a currency futures contract.

Which of the following are common FX trading activities?

The role of the forward FX contract is to offset the uncertainty regarding the future spot rate on a particular currency at the end of the investment horizon.

Which of the following statements is true for an FI that holds €200 000 in assets and €250 000 in liabilities?

Spot market for foreign exchange refers to the market in which foreign currency is traded for:

Which of the following statements is true?

The interest rate parity theorem implies that while interest rates are hedged, the dollar return on foreign investments can be above or below the return on domestic investments.

A positive net exposure position in FX implies that the FI is net:

Which of the following statements is true?

Which of the following statements is true?

Assume an FI holds US$200 000 in assets and US$150 000 in liabilities.Which of the following statements is true?

Assume an FI sells A$100 million for US dollars on the spot currency markets at an exchange rate of A$1.10 to US $1.00 and invests the US dollar assets at an interest rate of 12 per cent for one year.What is the Australian dollar proceeds from the US dollar investment (round to two decimals)?

A net short position exposes an FI to the risk that the foreign currency could rise in value against its domestic currency.

An FI that holds more foreign currency liabilities than assets has a net long position.

The case of the National Australia Bank shows that:

Explain the concept of the interest rate parity theorem (IRPT) and its implications for FIs?

In a currency swap it is usual to include both principal and interest payments as part of the swap agreement.

Which of the following is a reason for the decline in FX trading?

Which of the following is not a source of foreign exchange risk?

Which of the following statements is true?

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 are common FX trading activities?

The role of the forward FX contract is to offset the uncertainty regarding the future spot rate on a particular currency at the end of the investment horizon.

Which of the following statements is true for an FI that holds €200 000 in assets and €250 000 in liabilities?

Spot market for foreign exchange refers to the market in which foreign currency is traded for:

Which of the following statements is true?

The interest rate parity theorem implies that while interest rates are hedged, the dollar return on foreign investments can be above or below the return on domestic investments.

A positive net exposure position in FX implies that the FI is net:

Which of the following statements is true?

Which of the following statements is true?

Assume an FI holds US$200 000 in assets and US$150 000 in liabilities.Which of the following statements is true?

Assume an FI sells A$100 million for US dollars on the spot currency markets at an exchange rate of A$1.10 to US $1.00 and invests the US dollar assets at an interest rate of 12 per cent for one year.What is the Australian dollar proceeds from the US dollar investment (round to two decimals)?

A net short position exposes an FI to the risk that the foreign currency could rise in value against its domestic currency.

An FI that holds more foreign currency liabilities than assets has a net long position.

The case of the National Australia Bank shows that:

Explain the concept of the interest rate parity theorem (IRPT) and its implications for FIs?

In a currency swap it is usual to include both principal and interest payments as part of the swap agreement.

Which of the following is a reason for the decline in FX trading?

Which of the following is not a source of foreign exchange risk?

Which of the following statements is true?

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