Question 1

In the context of exchange rate policies,_____ is a pure market solution to determine exchange rates.

Accepted Answer

A)  fixed exchange rate 
B)  managed float 
C)  free float 
D)  target exchange rate policy

Question 2

In the context of currency management,a country with high currency risk must be totally avoided to prevent currency risk.

Accepted Answer

A) True 
 B)False

Question 3

Forward discount is a condition under which the forward rate of one currency relative to another currency is higher than the spot rate.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is true of a floating exchange rate policy?

Accepted Answer

A)  This policy sets the exchange rate of the domestic currency in terms of another currency. 
B)  It prevents erratic fluctuations that may trigger macroeconomic turbulence. 
C)  Exchange rate is allowed to fluctuate between an upper and lower range. 
D)  Governments believe in the free market and allow it to determine exchange rates.

Question 5

_____ refers to a transaction that protects traders and investors from exposure to the fluctuations of the spot rate.

Accepted Answer

A)  Forward discount 
B)  Forward premium 
C)  Strategic hedging 
D)  Currency hedging

Question 6

Which of the following scenarios exemplifies the purchasing power parity (PPP)theory?

Accepted Answer

A)  A cell phone manufactured in Russia costs lesser in UK than in Egypt. 
B)  A cell phone manufactured in Russia costs more in UK than in Egypt. 
C)  A cell phone manufactured in Russia costs lesser in UK and Egypt than other countries. 
D)  A cell phone manufactured in Russia costs the same in UK and Egypt.

Question 7

According to the Bretton Woods system,which of the following statements is true?

Accepted Answer

A)  All currencies were required to be gold convertible. 
B)  Gold was used as the common denominator for all currencies. 
C)  The exchange rate of the dollar was allowed to unilaterally change. 
D)  Only the US dollar was convertible to gold.

Question 8

In the short term,variations in interest rates have an insignificant effect on exchange rates and foreign funds.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is true of the relationship between a commodity's supply and demand?

Accepted Answer

A)  If the supply of a commodity decreases,the price of the commodity decreases. 
B)  Strong demand of a commodity will lead to price drops. 
C)  Oversupply of a commodity will result in price drops. 
D)  If the demand for a commodity decreases,the price of the commodity increases.

Question 10

Which of the following is true of the gold standard used from 1870 to 1914?

Accepted Answer

A)  It was highly volatile global peg system. 
B)  Banks were free from the need of maintaining gold reserves. 
C)  It propelled the dollar to the commanding heights of the global economy. 
D)  Gold was used as the common denominator for all currencies.

Question 11

Which of the following is also known as the "law of one price"?

Accepted Answer

A)  Common denominator 
B)  dirty float 
C)  Purchasing power parity 
D)  Flexible exchange rate policy

Question 12

According to the economic theory,which of the following factors determines a commodity's price?

Accepted Answer

A)  Spot transaction 
B)  Currency hedging 
C)  Forward rates 
D)  Supply and demand

Question 13

In managed float exchange rate policy,a main objective for government intervention in deciding the exchange rate is to prevent erratic fluctuations that may trigger macroeconomic turbulence.

Accepted Answer

A) True 
 B)False

Question 14

An Indian tourist visits the US and exchanges rupees for dollars at a foreign exchange counter at the airport.In this case,which of the following type of foreign exchange transaction has the tourist used?

Accepted Answer

A)  Spot transaction 
B)  Forward transaction 
C)  Currency hedging 
D)  Currency swap

Question 15

Explain the two major exchange rate policies.

Accepted Answer

The answer of Explain the two major exchange rate policies....

Question 16

In the context of currency risk management,many large,internationally experienced firms choose currency hedging since it is highly predictable.

Accepted Answer

A) True 
 B)False

Question 17

The gold standard was essentially a global peg system with little volatility and a great deal of predictability and stability.

Accepted Answer

A) True 
 B)False

Question 18

The International Monetary Fund receives its funds from _____.

Accepted Answer

A)  subsidiary investing 
B)  member countries' quota 
C)  foreign direct investment 
D)  currency hedging

Question 19

The Bretton Woods system came to an end because:

Accepted Answer

A)  of a combination of rising productivity elsewhere and US inflationary policies. 
B)  the exchange rate of the American dollar was allowed to change unilaterally. 
C)  every central bank needed to maintain gold reserves. 
D)  it increased the exchange rate of the US dollar.

Question 20

Which of the following is a difference between currency hedging and strategic hedging?

Accepted Answer

A)  Currency hedging offsets any currency losses in one region through gains in other regions,while strategic hedging focuses on one region. 
B)  Currency hedging is effective in predicting currency movements,whereas strategic hedging has significant currency risks. 
C)  Currency hedging deals in multiple currency zones,whereas strategic hedging deals in a single currency zone. 
D)  Currency hedging is done through in-house financial specialists,whereas strategic hedging is done through sourcing or foreign direct investment.

Exam 7: Dealing With Foreign Exchange

In the context of exchange rate policies,_____ is a pure market solution to determine exchange rates.

In the context of currency management,a country with high currency risk must be totally avoided to prevent currency risk.

Forward discount is a condition under which the forward rate of one currency relative to another currency is higher than the spot rate.

Which of the following is true of a floating exchange rate policy?

_____ refers to a transaction that protects traders and investors from exposure to the fluctuations of the spot rate.

Which of the following scenarios exemplifies the purchasing power parity (PPP) theory?

According to the Bretton Woods system,which of the following statements is true?

In the short term,variations in interest rates have an insignificant effect on exchange rates and foreign funds.

Which of the following statements is true of the relationship between a commodity's supply and demand?

Which of the following is true of the gold standard used from 1870 to 1914?

Which of the following is also known as the "law of one price"?

According to the economic theory,which of the following factors determines a commodity's price?

In managed float exchange rate policy,a main objective for government intervention in deciding the exchange rate is to prevent erratic fluctuations that may trigger macroeconomic turbulence.

An Indian tourist visits the US and exchanges rupees for dollars at a foreign exchange counter at the airport.In this case,which of the following type of foreign exchange transaction has the tourist used?

Explain the two major exchange rate policies.

In the context of currency risk management,many large,internationally experienced firms choose currency hedging since it is highly predictable.

The gold standard was essentially a global peg system with little volatility and a great deal of predictability and stability.

The International Monetary Fund receives its funds from _____.

The Bretton Woods system came to an end because:

Which of the following is a difference between currency hedging and strategic hedging?