Question 1

Which of the following statements is true?

Accepted Answer

A) The difference between a nominal interest rate and the rate of inflation is called the spread. 
B) The difference between a nominal interest rate and the rate of inflation is called the interest rate spread. 
C) The difference between a nominal interest rate and the rate of inflation is called the accumulated interest rate. 
D) The difference between a nominal interest rate and the rate of inflation is called the real interest rate. 
A) The difference between a nominal interest rate and the rate of inflation is called the spread. 
B) The difference between a nominal interest rate and the rate of inflation is called the interest rate spread. 
C) The difference between a nominal interest rate and the rate of inflation is called the accumulated interest rate. 
D) The difference between a nominal interest rate and the rate of inflation is called the real interest rate. D

Question 2

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. A

Question 3

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. B

Question 4

When purchasing and selling foreign currencies to allow customers to take positions in foreign real and financial investments, the FI:

Accepted Answer

A) acts defensively as a hedger 
B) acts aggressively as a speculator 
C) assumes the FX risk itself 
D) acts as an agent 
A) acts defensively as a hedger 
B) acts aggressively as a speculator 
C) assumes the FX risk itself 
D) acts as an agent

Question 5

Which of the following statements is true?

Accepted Answer

A) The market in which foreign currency is traded for future delivery is called the forward market for foreign exchange. 
B) The market in which foreign currency is traded for future delivery is called the future market for foreign exchange. 
C) The market in which foreign currency is traded for future delivery is called the spot market for foreign exchange. 
D) The market in which foreign currency is traded for future delivery is called the business market for foreign exchange. 
A) The market in which foreign currency is traded for future delivery is called the forward market for foreign exchange. 
B) The market in which foreign currency is traded for future delivery is called the future market for foreign exchange. 
C) The market in which foreign currency is traded for future delivery is called the spot market for foreign exchange. 
D) The market in which foreign currency is traded for future delivery is called the business market for foreign exchange.

Question 6

Most profits or losses on FX trading for FIs come from market making-the bid-ask spread-or from acting as agents for retail or wholesale customers.Revenues from taking an open position or speculating in currencies generally provide only a secondary or supplementary revenue source.

Accepted Answer

A) True 
 B)False

Question 7

A direct quote:

Accepted Answer

A) shows the amount of home currency received for one unit of the foreign currency exchanged 
B) shows the amount of foreign currency received for one unit of the home currency exchanged 
C) is equivalent to indirect quote 
D) None of the listed options are correct 
A) shows the amount of home currency received for one unit of the foreign currency exchanged 
B) shows the amount of foreign currency received for one unit of the home currency exchanged 
C) is equivalent to indirect quote 
D) None of the listed options are correct

Question 8

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 9

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 10

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 11

Indirect quote shows the amount of home currency received for one unit of the foreign currency exchanged.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

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 15

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 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Which of the following statements is true?

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

Which of the following statements is true?

When purchasing and selling foreign currencies to allow customers to take positions in foreign real and financial investments, the FI:

Which of the following statements is true?

Most profits or losses on FX trading for FIs come from market making-the bid-ask spread-or from acting as agents for retail or wholesale customers.Revenues from taking an open position or speculating in currencies generally provide only a secondary or supplementary revenue source.

A direct quote:

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

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

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

Indirect quote shows the amount of home currency received for one unit of the foreign currency exchanged.

An FI's net exposure can be measured as:

Which of the following statements is true?

Which of the following is the largest market for FX?

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

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

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?

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

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

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?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

Managing Interest Rate Risk Using Securitisation

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 Risks

Capital Management and Adequacy

Filters

Exam 13: Foreign Exchange Risk

Which of the following statements is true?

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

Which of the following statements is true?

When purchasing and selling foreign currencies to allow customers to take positions in foreign real and financial investments, the FI:

Which of the following statements is true?

Most profits or losses on FX trading for FIs come from market making-the bid-ask spread-or from acting as agents for retail or wholesale customers.Revenues from taking an open position or speculating in currencies generally provide only a secondary or supplementary revenue source.

A direct quote:

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

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

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

Indirect quote shows the amount of home currency received for one unit of the foreign currency exchanged.

An FI's net exposure can be measured as:

Which of the following statements is true?

Which of the following is the largest market for FX?

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

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

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?

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

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

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?

Why Are Financial Institutions Special

The Financial Service Industry: Depository Institutions

The Financial Service Industry: Other Financial Institutions

Risks 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

Managing Interest Rate Risk Using Securitisation

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 Risks

Capital Management and Adequacy

Filters