Question 1

What is the term for the conditional mean of the probability distribution of future spot rates?

Accepted Answer

A)  the expected swap rate 
B)  the future exchange rate 
C)  the outright rate 
D)  the expected future spot rate 
A)  the expected swap rate 
B)  the future exchange rate 
C)  the outright rate 
D)  the expected future spot rate D

Question 2

On December 3,2001,spot Japanese yen were sold at $0.008058.Suppose the 180-day forward Japanese yen was selling at a 1.91% annualized premium,what is the 180-day forward rate of the yen?

Accepted Answer

A)  0.008245 
B)  0.008135 
C)  0.008457 
D)  0.008550 
A)  0.008245 
B)  0.008135 
C)  0.008457 
D)  0.008550 B

Question 3

If the forward price of a currency contract is lower than the spot rate,the currency is said to be at a

Accepted Answer

A)  forward discount. 
B)  forward premium. 
C)  future expected exchange rate. 
D)  forward swap rate. 
A)  forward discount. 
B)  forward premium. 
C)  future expected exchange rate. 
D)  forward swap rate. A

Question 4

In a forward contract no monies change hands until the maturity date of the contract known as the ________,

Accepted Answer

A)  spot value date 
B)  exercise date 
C)  forward contract date 
D)  forward settlement date 
A)  spot value date 
B)  exercise date 
C)  forward contract date 
D)  forward settlement date

Question 5

How much of the probability distribution of future spot rates is between plus or minus two standard deviations?

Accepted Answer

A)  95.44% 
B)  167% 
C)  98% 
D)  4.55% 
A)  95.44% 
B)  167% 
C)  98% 
D)  4.55%

Question 6

If the British pound is selling at a premium relative to the euro in the forward market,is the forward price of EUR/? larger or smaller than the spot price of EUR/??

Accepted Answer

When the pound is selling at a

Question 7

Why would an MNC use a spot-forward swap?

Accepted Answer

A spot-forward swap involves either the

Question 8

If you want to hedge and owe a firm a foreign currency in the future,you would

Accepted Answer

A)  buy the foreign currency forward. 
B)  sell the foreign currency forward. 
C)  speculate on the possibility to not hedge. 
D)  buy the currency now and deposit into a bank account until needed. 
A)  buy the foreign currency forward. 
B)  sell the foreign currency forward. 
C)  speculate on the possibility to not hedge. 
D)  buy the currency now and deposit into a bank account until needed.

Question 9

Suppose the quote on pounds was $1.624-31.If you converted $10,000 to pounds and then back to dollars,how many dollars would you end up with?

Accepted Answer

For $10,000,you would buy pounds at the

Question 10

What is a spot-forward swap?

Accepted Answer

A)  the purchase of foreign currency spot against the sale of the same amount of foreign currency forward 
B)  the sale of foreign currency spot against the purchase of the same amount of the foreign currency forward 
C)  both the purchase or sale of a foreign currency spot against the sale or purchase of the foreign currency forward 
D)  the purchase of a foreign currency forward contract at the outright rate 
A)  the purchase of foreign currency spot against the sale of the same amount of foreign currency forward 
B)  the sale of foreign currency spot against the purchase of the same amount of the foreign currency forward 
C)  both the purchase or sale of a foreign currency spot against the sale or purchase of the foreign currency forward 
D)  the purchase of a foreign currency forward contract at the outright rate

Question 11

What is the name of the exchange rate specified in the forward contract?

Accepted Answer

A)  spot rate 
B)  forward rate 
C)  future exchange rate 
D)  cross-rate 
A)  spot rate 
B)  forward rate 
C)  future exchange rate 
D)  cross-rate

Question 12

From the perspective of the MNC,the most important purpose of the forward markets is the process of ________.

Accepted Answer

A)  hedging 
B)  arbitraging 
C)  speculating 
D)  preventing default 
A)  hedging 
B)  arbitraging 
C)  speculating 
D)  preventing default

Question 13

If you were asked to forecast the future spot rate of a currency,how much of the probability distribution of the rate is between plus or minus 2 standard deviations?

Accepted Answer

A)  12.55% 
B)  24.55% 
C)  62.87% 
D)  95.44% 
A)  12.55% 
B)  24.55% 
C)  62.87% 
D)  95.44%

Question 14

What is the name of the contract where corporations,institutional investors,and individuals are required to pay or to receive a specific amount of foreign currency at a specific exchange rate at a particular date in the future?

Accepted Answer

A)  forward foreign exchange market 
B)  forward currency contract 
C)  forward rate contract 
D)  future hedge contract 
A)  forward foreign exchange market 
B)  forward currency contract 
C)  forward rate contract 
D)  future hedge contract

Question 15

What is the name of the action that uses derivative securities to reduce risks arising from underlying business transactions in financial markets?

Accepted Answer

A)  forward contracts 
B)  hedging 
C)  forward rates 
D)  speculating 
A)  forward contracts 
B)  hedging 
C)  forward rates 
D)  speculating

Question 16

If the forward price of a currency contract is higher than the spot rate,the currency is said to be at a

Accepted Answer

A)  forward discount. 
B)  forward premium. 
C)  future expected exchange rate. 
D)  forward swap rate. 
A)  forward discount. 
B)  forward premium. 
C)  future expected exchange rate. 
D)  forward swap rate.

Question 17

Suppose the spot rate and forward rate for the British pound are $1.4248 and $1.4179 respectively.Assume the forward pound is selling at a 1.94% annualized discount,what is the number of days of the forward contract?

Accepted Answer

A)  180 days 
B)  120 days 
C)  90 days 
D)  60 days 
A)  180 days 
B)  120 days 
C)  90 days 
D)  60 days

Question 18

It is 1998.The spot and 30-day forward rates for the Dutch guilder are $.3075 and $.3120,respectively.The guilder is said to be selling at a forward

Accepted Answer

A)  premium of 16.83% 
B)  premium of 17.56% 
C)  discount of 6.39% 
D)  discount of 15.10% 
A)  premium of 16.83% 
B)  premium of 17.56% 
C)  discount of 6.39% 
D)  discount of 15.10%

Question 19

What is meant by the conditional future spot rate?

Accepted Answer

A)  the forward rate 
B)  the forecasted future spot rate 
C)  the conditional variance of the probability distribution of future spot rates 
D)  the conditional mean of the probability distribution of future spot rates 
A)  the forward rate 
B)  the forecasted future spot rate 
C)  the conditional variance of the probability distribution of future spot rates 
D)  the conditional mean of the probability distribution of future spot rates

Question 20

One of the major reasons for the existence of the forward market is to ________.

Accepted Answer

A)  provide a location for all currency traders to assemble and trade 
B)  manage currency risk especially risk associated with a transaction 
C)  hedge transactions involving foreign currency that occurred in the past 
D)  prevent default in the transaction 
A)  provide a location for all currency traders to assemble and trade 
B)  manage currency risk especially risk associated with a transaction 
C)  hedge transactions involving foreign currency that occurred in the past 
D)  prevent default in the transaction

Exam 3: Forward Markets and Transaction Exchange Risk

What is the term for the conditional mean of the probability distribution of future spot rates?

On December 3,2001,spot Japanese yen were sold at $0.008058.Suppose the 180-day forward Japanese yen was selling at a 1.91% annualized premium,what is the 180-day forward rate of the yen?

If the forward price of a currency contract is lower than the spot rate,the currency is said to be at a

In a forward contract no monies change hands until the maturity date of the contract known as the ________,

How much of the probability distribution of future spot rates is between plus or minus two standard deviations?

If the British pound is selling at a premium relative to the euro in the forward market,is the forward price of EUR/? larger or smaller than the spot price of EUR/??

Why would an MNC use a spot-forward swap?

If you want to hedge and owe a firm a foreign currency in the future,you would

Suppose the quote on pounds was $1.624-31.If you converted $10,000 to pounds and then back to dollars,how many dollars would you end up with?

What is a spot-forward swap?

What is the name of the exchange rate specified in the forward contract?

From the perspective of the MNC,the most important purpose of the forward markets is the process of ________.

If you were asked to forecast the future spot rate of a currency,how much of the probability distribution of the rate is between plus or minus 2 standard deviations?

What is the name of the contract where corporations,institutional investors,and individuals are required to pay or to receive a specific amount of foreign currency at a specific exchange rate at a particular date in the future?

What is the name of the action that uses derivative securities to reduce risks arising from underlying business transactions in financial markets?

If the forward price of a currency contract is higher than the spot rate,the currency is said to be at a

Suppose the spot rate and forward rate for the British pound are $1.4248 and $1.4179 respectively.Assume the forward pound is selling at a 1.94% annualized discount,what is the number of days of the forward contract?

It is 1998.The spot and 30-day forward rates for the Dutch guilder are $.3075 and $.3120,respectively.The guilder is said to be selling at a forward

What is meant by the conditional future spot rate?

One of the major reasons for the existence of the forward market is to ________.

Globalization and the Multinational Corporation

The Foreign Exchange Market

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Speculation and Risk in the Foreign Exchange Market

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Risk Management and the Foreign Currency Hedging Decision

Financing International Trade

Managing Net Working Capital

Foreign Currency Futures and Options

Interest Rates and Foreign Currency Swaps

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