Question 1

The _____________ market school argues that forward exchange rates do the best possible job of forecasting future spot exchange rates, so investing in exchange rate forecasting services would be a waste of time.

Accepted Answer

A) efficient 
B) closed 
C) inefficient 
D) free 
E) open

Question 2

Which of the following correctly matches a country with its currency?

Accepted Answer

A) South Korea, the pound 
B) France, the deutsche mark 
C) Japan, the yuan 
D) Great Britain, the franc 
E) Brazil, the real

Question 3

The variables in fundamental analysis models can include

Accepted Answer

A) price 
B) volume 
C) investor psychology 
D) the bandwagon effect 
E) money supply

Question 4

Explain the difference between spot exchange rates and forward exchange rates.Briefly explain how the forward exchange market works.

Accepted Answer

The answer of Explain the difference between spot exchange rates...

Question 5

If the law of one price were true for all goods and services, the _____________ exchange rate could be found from any individual set of prices.

Accepted Answer

A) stability power similarity (SPS) 
B) purchasing ability adeptness (PA
A)  
C) buying prowess equality (BP
E)  
D) purchasing power parity (PPP) 
E) spot

Question 6

Currency exchange fluctuations are important for a business to understand because they can ____________________

Accepted Answer

A) affect profitability in a international transaction 
B) affect pricing in a country market 
C) affect the competitive advantage of a company 
D) increase costs for imported goods 
E) all of these answers are correct

Question 7

The law of one price states that identical products sold in different countries must sell for the same price when their price is expressed in the same currency in competitive markets free of transportation costs and barriers to trade.

Accepted Answer

A) True 
 B)False

Question 8

_____________ occurs when an investor purchases securities in one market for immediate resale in another.

Accepted Answer

A) Hedge fund 
B) Foreign direct investment 
C) Foreign exchange risk 
D) Arbitrage 
E) Financial gain

Question 9

The Canadian dollar has been appreciating against the US dollar, but has held steady against other currencies.You have been asked by the CEO to prepare a marketing plan for entering EU countries.One of the key elements of your marketing plan is to price in Euros.What are the pros and cons of this currency strategy?

Accepted Answer

The answer of The Canadian dollar has been appreciating against...

Question 10

The ______________ is less useful for predicting exchange movements between the currencies of advanced industrialized nation that have relatively small differentials in inflation rates.

Accepted Answer

A) tolerant market 
B) efficiency theory 
C) PPP theory 
D) closed market 
E) supply and demand mechanism

Question 11

Currency speculation typically involves

Accepted Answer

A) the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. 
B) the permanent movement of funds from one currency to another in the hopes of profiting from long-term investment in a particular country. 
C) the simultaneous purchase of currencies from several countries in hopes of profiting from increasing economic prosperity. 
D) the liquidation of currency in favour of precious metals as a hedge against inflation. 
E) Buying low and holding currency until it stabilizes, than selling

Question 12

Which of the following statements is true?

Accepted Answer

A) The existence of the foreign exchange market has removed all forms of foreign exchange risk for business organizations. 
B) Despite the existence of the foreign exchange market, firms do suffer losses because of unpredicted changes in exchange rates, although these occasions are rare. 
C) The foreign exchange market eliminates very little foreign exchange risk. 
D) The foreign exchange market is characterized by large numbers of speculators who increase the foreign exchange risk for firms 
E) Despite the existence of the foreign exchange market, it is not unusual for international businesses to suffer losses because of unpredicted changes in exchange rates.

Question 13

PPP theory predicts that changes in ______________ will result in a change in exchange rates.

Accepted Answer

A) relative prices 
B) interest rates 
C) unemployment rates 
D) statutory prices 
E) wholesale prices

Question 14

The movement of foreign exchange rates

Accepted Answer

A) provide some insurance against foreign exchange risk. 
B) has significantly deteriorated the overall volume of foreign trade. 
C) sets interest rates charged to foreign investors. 
D) introduces many risks into international trade and investment. 
E) is a natural function of supply and demand among currency traders

Question 15

What factors will have an impact on the value of the Canadian dollar in six months time.Make a prediction as to whether the dollar will rise or fall against the following currencies: U.S.dollar, Euro, Yuan.Justify your answer.

Accepted Answer

The answer of What factors will have an impact on...

Question 16

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

Accepted Answer

The answer of Where is the foreign exchange market located?...

Question 17

According to the International Fisher Effect, for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries.

Accepted Answer

A) True 
 B)False

Question 18

The market through which an individual or institution exchanges one currency into another is called the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 19

When the dollar buys more francs on the spot market than the 30-day forward market, we say the dollars is selling at a ______________.Conversely, when the dollars buys less francs on the spot market than the 30-day forward market, we say the dollar is selling at a ______________.

Accepted Answer

A) premium; discount 
B) handicap; bonus 
C) discount; premium 
D) subsidy; handicap 
E) gain; loss

Question 20

An efficient market is one in which prices reflect all available public information.

Accepted Answer

A) True 
 B)False

Exam 9: The Foreign Exchange Market

The _____________ market school argues that forward exchange rates do the best possible job of forecasting future spot exchange rates, so investing in exchange rate forecasting services would be a waste of time.

Which of the following correctly matches a country with its currency?

The variables in fundamental analysis models can include

Explain the difference between spot exchange rates and forward exchange rates.Briefly explain how the forward exchange market works.

If the law of one price were true for all goods and services, the _____________ exchange rate could be found from any individual set of prices.

Currency exchange fluctuations are important for a business to understand because they can ____________________

The law of one price states that identical products sold in different countries must sell for the same price when their price is expressed in the same currency in competitive markets free of transportation costs and barriers to trade.

_____________ occurs when an investor purchases securities in one market for immediate resale in another.

The ______________ is less useful for predicting exchange movements between the currencies of advanced industrialized nation that have relatively small differentials in inflation rates.

Currency speculation typically involves

Which of the following statements is true?

PPP theory predicts that changes in ______________ will result in a change in exchange rates.

The movement of foreign exchange rates

What factors will have an impact on the value of the Canadian dollar in six months time.Make a prediction as to whether the dollar will rise or fall against the following currencies: U.S.dollar, Euro, Yuan.Justify your answer.

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

According to the International Fisher Effect, for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries.

The market through which an individual or institution exchanges one currency into another is called the foreign exchange market.

When the dollar buys more francs on the spot market than the 30-day forward market, we say the dollars is selling at a .Conversely, when the dollars buys less francs on the spot market than the 30-day forward market, we say the dollar is selling at a .

An efficient market is one in which prices reflect all available public information.