Exam 13: Introduction to Exchange Rates and the Foreign Exchange Market

You have studied how nations have adopted a wide variety of exchange rate regimes from freely floating with almost no intervention to rigid and fixed with complete control by the government. Other nations have chosen different paths, relinquishing some or all control over their currencies. Discuss two such systems and comment on their differences.

(Table: Currency Values I) The U.S. dollar depreciated against the euro by:

Uncovered interest parity refers to:

The situation in which the difference in interest rates between two currencies is equal to the expected change in the spot rate over the same period is known as:

The total rate of return on an international asset is the:

To maintain a fixed exchange rate via intervention in the markets, a government should:

If a government wishes to limit or prohibit fluctuations in exchange rates, it will choose:

The expected rate of currency depreciation is equal to the proportional difference between the forward rate and the spot rate. This is known as the:

Explain how a trader can exploit an arbitrage opportunity using the spot market and the forward market, after discovering a difference in interest rate returns on two currencies.

Approximately how many different national currencies exist in the world today?

Whenever a nation's currency is expected to depreciate because of various market conditions, the following situation exists regarding its forward rate for another currency:

A crawling peg refers to:

What is a multilateral exchange rate?

Suppose the average interest rate on euro bonds is 4%, and the average interest rate on U.S. dollar bonds is 6%. Which should the investor choose?

A spot contract is a(n):

Generally, exchange rates are quoted as a single price of a unit of foreign currency rather than a ratio because:

The fall in the U.S. dollar has not affected Chinese trade as much as that for other countries because:

From uncovered interest parity, we know that when the domestic currency is expected to depreciate, the domestic interest rate should be:

In which of the following categories would an agreement to buy or sell a certain quantity of a specified currency at a fixed price at a date 30, 60, 90, 120, or 360 days in the future be included?

Which of the following statements is equivalent to an appreciation of the dollar relative to the euro?