Question 1

The forward exchange rate:

Accepted Answer

A)  allows investors to be sure of the price at which they can trade forex in the future. 
B)  is the rate at which a trader can purchase currency for immediate delivery. 
C)  is the rate of discount that international banks get when they purchase. 
D)  is the rate that speculators consider if they are looking for bargain prices. 
A)  allows investors to be sure of the price at which they can trade forex in the future. 
B)  is the rate at which a trader can purchase currency for immediate delivery. 
C)  is the rate of discount that international banks get when they purchase. 
D)  is the rate that speculators consider if they are looking for bargain prices.

Question 2

If a nation abandons its own currency and decides to use another nation's currency as its own circulating currency, this is known as:

Accepted Answer

A)  euro-zoning. 
B)  dollarization. 
C)  a managed float. 
D)  a Western regime. 
A)  euro-zoning. 
B)  dollarization. 
C)  a managed float. 
D)  a Western regime.

Question 3

Which of the following is NOT a major foreign exchange center?

Accepted Answer

A)  London 
B)  New York 
C)  Tokyo 
D)  Chicago 
A)  London 
B)  New York 
C)  Tokyo 
D)  Chicago

Question 4

The overall volume of daily currency trade was ____ in 2013.

Accepted Answer

A)  $3.2 billion 
B)  $32 billion 
C)  $320 trillion 
D)  $5.3 trillion 
A)  $3.2 billion 
B)  $32 billion 
C)  $320 trillion 
D)  $5.3 trillion

Question 5

Parallel markets is another term for:

Accepted Answer

A)  government interventions. 
B)  interbank trades. 
C)  black markets. 
D)  trade in goods and in services. 
A)  government interventions. 
B)  interbank trades. 
C)  black markets. 
D)  trade in goods and in services.

Question 6

Market spreads usually range from _____ on large contracts to ______ on small contracts.

Accepted Answer

A)  3%; 0.5% 
B)  10%; 2% 
C)  1%; 2% 
D)  0.01%; 5% 
A)  3%; 0.5% 
B)  10%; 2% 
C)  1%; 2% 
D)  0.01%; 5%

Question 7

Capital control is described by all of the following, EXCEPT:

Accepted Answer

A)  restricting merchandise trade. 
B)  restricting the trade in foreign exchange. 
C)  channeling the currency trade through the government. 
D)  restricting cross-border financial transactions. 
A)  restricting merchandise trade. 
B)  restricting the trade in foreign exchange. 
C)  channeling the currency trade through the government. 
D)  restricting cross-border financial transactions.

Question 8

What are the similarities and differences between a currency union and dollarization?

Accepted Answer

A currency union and dollarization both

Question 9

Forwards, swaps, futures, and options are examples of:

Accepted Answer

A)  spot market transactions. 
B)  transaction costs. 
C)  market frictions. 
D)  derivatives. 
A)  spot market transactions. 
B)  transaction costs. 
C)  market frictions. 
D)  derivatives.

Question 10

(Table: Currency Values I) The U.S. dollar appreciated against the:

Accepted Answer

A)  British pound and the Indian rupee. 
B)  euro and the Indian rupee, 
C)  euro and the Brazilian real. 
D)  euro and the Indian rupee 
A)  British pound and the Indian rupee. 
B)  euro and the Indian rupee, 
C)  euro and the Brazilian real. 
D)  euro and the Indian rupee

Question 11

Liquidity of an asset refers to:

Accepted Answer

A)  its level of risk. 
B)  whether it is held domestically or overseas. 
C)  the ease with which it can be sold. 
D)  its volatility. 
A)  its level of risk. 
B)  whether it is held domestically or overseas. 
C)  the ease with which it can be sold. 
D)  its volatility.

Question 12

(Table: Currency Values I) Between 2015 and 2016, how did the euro do against the British pound?

Accepted Answer

A)  It appreciated. 
B)  It held steady. 
C)  It depreciated. 
D)  Not enough information is provided to know how well the euro did. 
A)  It appreciated. 
B)  It held steady. 
C)  It depreciated. 
D)  Not enough information is provided to know how well the euro did.

Question 13

Spreads in quotations of exchange rates are:

Accepted Answer

A)  the geographical dispersion of nations that use the currency. 
B)  a measure of contagion involved in changes in exchange rates. 
C)  the difference in the price the buyer pays versus the price the seller receives. 
D)  the percentage of interest one pays when borrowing to purchase currencies. 
A)  the geographical dispersion of nations that use the currency. 
B)  a measure of contagion involved in changes in exchange rates. 
C)  the difference in the price the buyer pays versus the price the seller receives. 
D)  the percentage of interest one pays when borrowing to purchase currencies.

Question 14

The forward contract differs from a futures contract in that:

Accepted Answer

A)  the forward contract is to be settled immediately. 
B)  the futures contract specifies a fixed amount and arranged date, whereas the forward contract can be for any amount or date. 
C)  the futures contract cannot be traded in a market, whereas the forward contract can be bought in the market. 
D)  forward contracts are standardized, whereas futures contracts are not standardized. 
A)  the forward contract is to be settled immediately. 
B)  the futures contract specifies a fixed amount and arranged date, whereas the forward contract can be for any amount or date. 
C)  the futures contract cannot be traded in a market, whereas the forward contract can be bought in the market. 
D)  forward contracts are standardized, whereas futures contracts are not standardized.

Question 15

Foreign exchange contracts, such as futures, swaps, and options, are collectively known as:

Accepted Answer

A)  derivatives. 
B)  deposits. 
C)  spot contracts. 
D)  spreads. 
A)  derivatives. 
B)  deposits. 
C)  spot contracts. 
D)  spreads.

Question 16

Suppose 60% of U.S. trade is with England and the rest is with Japan. If the dollar rises by 20% against the pound but falls by 20% against the yen, what is the percentage change in the effective exchange rate of the United States?

Accepted Answer

A)  -12% 
B)  -4% 
C)  ±0% 
D)  -8% 
A)  -12% 
B)  -4% 
C)  ±0% 
D)  -8%

Question 17

An exchange rate crisis is when:

Accepted Answer

A)  the currency is stable. 
B)  the value of a currency declines dramatically. 
C)  the value of a currency increases dramatically. 
D)  a country fixes the price of its currency. 
A)  the currency is stable. 
B)  the value of a currency declines dramatically. 
C)  the value of a currency increases dramatically. 
D)  a country fixes the price of its currency.

Question 18

When a nation's currency appreciates, it purchases _____ units of a foreign currency and its currency is said to _____.

Accepted Answer

A)  fewer; strengthen 
B)  more; strengthen 
C)  fewer; weaken 
D)  more; weaken 
A)  fewer; strengthen 
B)  more; strengthen 
C)  fewer; weaken 
D)  more; weaken

Question 19

(Table: Exchange Rates Across Currencies) Based on the information provided, which of the following statements is TRUE?

Accepted Answer

A)  1 peso = 10 yen 
B)  1 rupee = 10 yen 
C)  1 peso = 3 rupees 
D)  $1 Canadian = 35 rupees 
A)  1 peso = 10 yen 
B)  1 rupee = 10 yen 
C)  1 peso = 3 rupees 
D)  $1 Canadian = 35 rupees

Question 20

What role(s) might the government play in the foreign exchange markets? Explain.

Accepted Answer

The government can play several roles in

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

The forward exchange rate:

If a nation abandons its own currency and decides to use another nation's currency as its own circulating currency, this is known as:

Which of the following is NOT a major foreign exchange center?

The overall volume of daily currency trade was ____ in 2013.

Parallel markets is another term for:

Market spreads usually range from _____ on large contracts to ______ on small contracts.

Capital control is described by all of the following, EXCEPT:

What are the similarities and differences between a currency union and dollarization?

Forwards, swaps, futures, and options are examples of:

(Table: Currency Values I) The U.S. dollar appreciated against the:

Liquidity of an asset refers to:

(Table: Currency Values I) Between 2015 and 2016, how did the euro do against the British pound?

Spreads in quotations of exchange rates are:

The forward contract differs from a futures contract in that:

Foreign exchange contracts, such as futures, swaps, and options, are collectively known as:

Suppose 60% of U.S. trade is with England and the rest is with Japan. If the dollar rises by 20% against the pound but falls by 20% against the yen, what is the percentage change in the effective exchange rate of the United States?

An exchange rate crisis is when:

When a nation's currency appreciates, it purchases _____ units of a foreign currency and its currency is said to _____.

(Table: Exchange Rates Across Currencies) Based on the information provided, which of the following statements is TRUE?

What role(s) might the government play in the foreign exchange markets? Explain.

Trade in the Global Economy

Trade and Technology: The Ricardian Model

Gains and Losses From Trade in the Specific-Factors Model

Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

Increasing Returns to Scale and Monopolistic Competition

Offshoring of Goods and Services

Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

Export Subsidies in Agriculture and High-Technology Industries

International Agreements: Trade, Labor, and the Environment

The Global Macroeconomy

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

National and International Accounts: Income, Wealth, and the Balance of Payments

Balance of Payments I: the Gains From Financial Globalization

Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

Exchange Rate Crises: How Pegs Work and How They Break

The Euro

Topics in International Macroeconomics

Filters

Market spreads usually range from _ on large contracts to __ on small contracts.

When a nation's currency appreciates, it purchases _ units of a foreign currency and its currency is said to _.