Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Assume an FI sells A$100 million for euros at the spot exchange rate today and receives A$100 million/ A$1.15 = €86.96 million.Further assume that the FI immediately lends the €86.96 to a German customer at 12% per annum for one year.Which of the following statements is true regarding this transaction?

Accepted Answer

A) The FI can sell the expected principal and interest proceeds from the euro loan forward for Australian dollars today at today's forward rate for one-year delivery to hedge its position. 
B) Assuming the FI decides to enter into a forward contract on its FX exposure at the current forward one-year exchange rate between Australian dollars and euros at A$1.10/€1, then it means that the buyer of the forward contract promises to pay €86.96 * (A$1.10/€1) = A$95.57 million to the FI. 
C) At maturity, the German borrower repays the loan to the FI plus interest in dollars, that is, (€86.96 * 1.12) * (A$1.15/€1) = A$112.00 million. 
D) All of the listed options are correct. 
A) The FI can sell the expected principal and interest proceeds from the euro loan forward for Australian dollars today at today's forward rate for one-year delivery to hedge its position. 
B) Assuming the FI decides to enter into a forward contract on its FX exposure at the current forward one-year exchange rate between Australian dollars and euros at A$1.10/€1, then it means that the buyer of the forward contract promises to pay €86.96 * (A$1.10/€1) = A$95.57 million to the FI. 
C) At maturity, the German borrower repays the loan to the FI plus interest in dollars, that is, (€86.96 * 1.12) * (A$1.15/€1) = A$112.00 million. 
D) All of the listed options are correct.

Question 3

Direct quote shows the amount of foreign currency received for each unit of home currency exchanged.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is true?

Accepted Answer

A) Holding less assets than liabilities in a given currency is referred to as a net short position. 
B) Holding less assets than liabilities in a given currency is referred to a net long position. 
C) Holding less assets than liabilities in a given currency is referred to as a gross short position. 
D) Holding less assets than liabilities in a given currency is referred to as a gross long position. 
A) Holding less assets than liabilities in a given currency is referred to as a net short position. 
B) Holding less assets than liabilities in a given currency is referred to a net long position. 
C) Holding less assets than liabilities in a given currency is referred to as a gross short position. 
D) Holding less assets than liabilities in a given currency is referred to as a gross long position.

Question 5

An indirect 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 each unit of home currency exchanged 
C) is equivalent to direct 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 each unit of home currency exchanged 
C) is equivalent to direct quote 
D) None of the listed options are correct

Question 6

Most profits or losses on foreign trading for FIs come from:

Accepted Answer

A) open positions or speculation 
B) market making 
C) acting as agents for retail customers 
D) hedging activities 
A) open positions or speculation 
B) market making 
C) acting as agents for retail customers 
D) hedging activities

Question 7

Forward exchange rate is the exchange rate agreed to today for future (forward) delivery of a currency

Accepted Answer

A) True 
 B)False

Question 8

A net exposure is the degree to which a bank is net long (positive) or net short (negative) in a given currency.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 FX bought position of the Australian FI?

Accepted Answer

A) -US$20,000 
B) US$20,000 
C) US$80,000 
D) US$100,000 
A) -US$20,000 
B) US$20,000 
C) US$80,000 
D) US$100,000

Question 11

The reserve currency, the US dollar, was the dominant vehicle currency being on one side of all FX trades in 87% of cases in April 2013, and the euro was second being involved in 33% of trades.

Accepted Answer

A) True 
 B)False

Question 12

Discuss four trading activities that reflect FI's position in the FX markets.

Accepted Answer

An FI's position in the FX markets gener

Question 13

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 14

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 15

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 16

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 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.

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

Direct quote shows the amount of foreign currency received for each unit of home currency exchanged.

Which of the following statements is true?

An indirect quote:

Most profits or losses on foreign trading for FIs come from:

Forward exchange rate is the exchange rate agreed to today for future (forward) delivery of a currency

A net exposure is the degree to which a bank is net long (positive) or net short (negative) in a given currency.

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 FX bought position of the Australian FI?

The reserve currency, the US dollar, was the dominant vehicle currency being on one side of all FX trades in 87% of cases in April 2013, and the euro was second being involved in 33% of trades.

Discuss four trading activities that reflect FI's position in the FX markets.

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

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

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.

The case of the National Australia Bank shows that:

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

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

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

Direct quote shows the amount of foreign currency received for each unit of home currency exchanged.

Which of the following statements is true?

An indirect quote:

Most profits or losses on foreign trading for FIs come from:

Forward exchange rate is the exchange rate agreed to today for future (forward) delivery of a currency

A net exposure is the degree to which a bank is net long (positive) or net short (negative) in a given currency.

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 FX bought position of the Australian FI?

The reserve currency, the US dollar, was the dominant vehicle currency being on one side of all FX trades in 87% of cases in April 2013, and the euro was second being involved in 33% of trades.

Discuss four trading activities that reflect FI's position in the FX markets.

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

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

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.

The case of the National Australia Bank shows that:

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

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