Question 1

Arbitrage tends to bring about an identical price for the same currency in different locations and thus results in one market.

Accepted Answer

A) True 
 B)False

Question 2

Concerning the exchange rate index of the U.S.dollar, suppose that the dollar's real exchange rate index rises from 95 to 115.This means that

Accepted Answer

A)   the dollar has depreciated against the currencies of its major trading partners.
B)   the dollar has appreciated against the currencies of its major trading partners.
C)   the dollar's nominal exchange rate index falls.
D)   the dollar's nominal exchange rate index remains constant.E) All of the above
F) A) and D)

Question 3

Arbitrage results in a riskless profit because a trader purchases a currency at a low price and simultaneously resells it at a higher price.

Accepted Answer

A) True 
 B)False

Question 4

Concerning the spot market for foreign exchange transactions,

Accepted Answer

A)   currencies are bought and sold for delivery at a particular date in the future.
B)   currencies are traded for immediate delivery.
C)   currency exchange rates are set by government regulatory agencies.
D)   currency exchange rates are set by central banks.E) B) and D)
F) None of the above

Question 5

When the dollar depreciates,

Accepted Answer

A)   U.S. exporters tend to sell more goods in foreign markets.
B)   U.S. consumers see a lower price on foreign goods.
C)   More foreign tourists can afford to visit the United States.
D)   U.S. inflation is low.E) B) and D)
F) B) and C)

Question 6

Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price within a few days to a couple of years?

Accepted Answer

A)   letter of credit
B)   foreign currency option
C)   cable transfer
D)   bill of exchangeE) A) and B)
F) None of the above

Question 7

Currency arbitrage tends to result in identical yen/dollar exchange rates in New York and in Tokyo.

Accepted Answer

A) True 
 B)False

Question 8

The demand curve for British pounds slopes downward because as the dollar ______ British goods become ______ for Americans.Therefore, Americans purchase ______ British goods, and the quantity of pounds demanded decreases.

Accepted Answer

A)   appreciates against the pound; more expensive; more
B)   appreciates against the pound; more expensive; fewer
C)   depreciates against the pound; more expensive; more
D)   depreciates against the pound; more expensive; fewerE) B) and D)
F) All of the above

Question 9

In the forward market, the exchange rate is agreed on at the time of the currency contract, but payment is not made until the future delivery of the currency actually takes place.

Accepted Answer

A) True 
 B)False

Question 10

When the U.S.dollar appreciates against the Mexican peso, the peso becomes ______, and the U.S.exchange rate ______.

Accepted Answer

A)   less expensive; declines
B)   less expensive; rises
C)   more expensive; declines
D)   more expensive; risesE) B) and C)
F) A) and D)

Question 11

Which method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future?

Accepted Answer

A)   forward transaction
B)   futures transaction
C)   spot transaction
D)   swap transactionE) None of the above
F) C) and D)

Question 12

A foreign currency option is an agreement between a holder (corporation) and a writer (commercial bank) that gives the holder the right to buy or sell a certain amount of foreign currency at any time through some specified date.

Accepted Answer

A) True 
 B)False

Question 13

The supply curve of British pounds slopes upward because as the dollar _____ American goods become ______ for the British.Therefore, the British purchase ______ American goods, and the quantity of pounds supplied decreases.

Accepted Answer

A)   depreciates against the pound; more expensive; more
B)   depreciates against the pound; more expensive; less
C)   appreciates against the pound; more expensive; less
D)   appreciates against the pound; less expensive; moreE) B) and D)
F) A) and B)

Question 14

Concerning foreign exchange trading, bank purchases from and sales to their customers are classified as retail transactions when the amount involved

Accepted Answer

A)   is less than 100,000 units of currency.
B)   is less than 500,000 units of currency.
C)   is less than 1 million units of currency.
D)   is greater than 1 million units of currency.E) All of the above
F) B) and C)

Question 15

The offer rate

Accepted Answer

A)   is the price at which the bank is willing to sell a unit of foreign currency.
B)   is the price that the bank is willing to pay for a unit of foreign currency.
C)   is synonymous with the spread rate.
D)   is synonymous with the exchange rate.E) C) and D)
F) All of the above

Question 16

What foreign exchange transactions do banks typically engage in?

Accepted Answer

Banks typically enga...

Question 17

Assume that you are the Chase Manhattan Bank of the United States, and you have 1 million Swiss francs in your vault that you will need to use in 30 days.Moreover, you need 500,000 British pounds for the next 30 days.You arrange to loan your francs to Barclays Bank of London for 30 days in exchange for 500,000 pounds today and reverse the transaction at the end of 30 days.You have just arranged a

Accepted Answer

A)   forward contract.
B)   futures contract.
C)   spot contract.
D)   currency swap.E) A) and B)
F) C) and D)

Question 18

Foreign exchange transactions are generally carried out by smaller banks located in smaller cities throughout the United States.

Accepted Answer

A) True 
 B)False

Question 19

When conducting foreign exchange trading, commercial banks like Bank of America offer forward contracts.The size of these contracts can be tailored to the needs of an importer or importer and their date of delivery is negotiable.

Accepted Answer

A) True 
 B)False

Question 20

In the table above, a change in the ______ will result in a movement along the demand schedule for pounds.

Accepted Answer

A)   dollar/pound exchange rate
B)   rate of interest in the United States
C)   per-capita income of Americans
D)   level of technology in the United StatesE) None of the above
F) A) and B)

Exam 11: Foreign Exchange

A foreign currency option is an agreement between a holder (corporation) and a writer (commercial bank) that gives the holder the right to buy or sell a certain amount of foreign currency at any time through some specified date.

Correct Answer
verified

Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price within a few days to a couple of years?

Correct Answer
verified

The demand curve for British pounds slopes downward because as the dollar British goods become for Americans.Therefore, Americans purchase __ British goods, and the quantity of pounds demanded decreases.

Correct Answer
verified

In the forward market, the exchange rate is agreed on at the time of the currency contract, but payment is not made until the future delivery of the currency actually takes place.

Correct Answer
verified

Which method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future?

Correct Answer
verified

In the table above, a change in the ______ will result in a movement along the demand schedule for pounds.

Correct Answer
verified

The supply curve of British pounds slopes upward because as the dollar _ American goods become for the British.Therefore, the British purchase ____ American goods, and the quantity of pounds supplied decreases.

Correct Answer
verified

Currency arbitrage tends to result in identical yen/dollar exchange rates in New York and in Tokyo.

Correct Answer
verified

Arbitrage tends to bring about an identical price for the same currency in different locations and thus results in one market.

Correct Answer
verified

Concerning the exchange rate index of the U.S.dollar, suppose that the dollar's real exchange rate index rises from 95 to 115.This means that

Correct Answer
verified

Concerning the spot market for foreign exchange transactions,

Correct Answer
verified

Foreign exchange transactions are generally carried out by smaller banks located in smaller cities throughout the United States.

Correct Answer
verified

When conducting foreign exchange trading, commercial banks like Bank of America offer forward contracts.The size of these contracts can be tailored to the needs of an importer or importer and their date of delivery is negotiable.

Correct Answer
verified

When the dollar depreciates,

Correct Answer
verified

Arbitrage results in a riskless profit because a trader purchases a currency at a low price and simultaneously resells it at a higher price.

Correct Answer
verified

Correct Answer
verified

Concerning foreign exchange trading, bank purchases from and sales to their customers are classified as retail transactions when the amount involved

Correct Answer
verified

The offer rate

Correct Answer
verified

What foreign exchange transactions do banks typically engage in?

Correct Answer
verified
Banks typically enga...
View Answer

When the U.S.dollar appreciates against the Mexican peso, the peso becomes , and the U.S.exchange rate .

Correct Answer
verified

Exam 11: Foreign Exchange

A foreign currency option is an agreement between a holder (corporation) and a writer (commercial bank) that gives the holder the right to buy or sell a certain amount of foreign currency at any time through some specified date.

Correct AnswerverifiedShow Answer

Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price within a few days to a couple of years?

Correct AnswerverifiedShow Answer

The demand curve for British pounds slopes downward because as the dollar ______ British goods become ______ for Americans.Therefore, Americans purchase ______ British goods, and the quantity of pounds demanded decreases.

Correct AnswerverifiedShow Answer

In the forward market, the exchange rate is agreed on at the time of the currency contract, but payment is not made until the future delivery of the currency actually takes place.

Correct AnswerverifiedShow Answer

Which method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future?

Correct AnswerverifiedShow Answer

In the table above, a change in the ______ will result in a movement along the demand schedule for pounds.

Correct AnswerverifiedShow Answer

The supply curve of British pounds slopes upward because as the dollar _____ American goods become ______ for the British.Therefore, the British purchase ______ American goods, and the quantity of pounds supplied decreases.

Correct AnswerverifiedShow Answer

Currency arbitrage tends to result in identical yen/dollar exchange rates in New York and in Tokyo.

Correct AnswerverifiedShow Answer

Arbitrage tends to bring about an identical price for the same currency in different locations and thus results in one market.

Correct AnswerverifiedShow Answer

Concerning the exchange rate index of the U.S.dollar, suppose that the dollar's real exchange rate index rises from 95 to 115.This means that

Correct AnswerverifiedShow Answer

Concerning the spot market for foreign exchange transactions,

Correct AnswerverifiedShow Answer

Foreign exchange transactions are generally carried out by smaller banks located in smaller cities throughout the United States.

Correct AnswerverifiedShow Answer

When conducting foreign exchange trading, commercial banks like Bank of America offer forward contracts.The size of these contracts can be tailored to the needs of an importer or importer and their date of delivery is negotiable.

Correct AnswerverifiedShow Answer

When the dollar depreciates,

Correct AnswerverifiedShow Answer

Arbitrage results in a riskless profit because a trader purchases a currency at a low price and simultaneously resells it at a higher price.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Concerning foreign exchange trading, bank purchases from and sales to their customers are classified as retail transactions when the amount involved

Correct AnswerverifiedShow Answer

The offer rate

Correct AnswerverifiedShow Answer

What foreign exchange transactions do banks typically engage in?

Correct AnswerverifiedBanks typically enga...View AnswerShow Answer

When the U.S.dollar appreciates against the Mexican peso, the peso becomes ______, and the U.S.exchange rate ______.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

The demand curve for British pounds slopes downward because as the dollar British goods become for Americans.Therefore, Americans purchase __ British goods, and the quantity of pounds demanded decreases.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

The supply curve of British pounds slopes upward because as the dollar _ American goods become for the British.Therefore, the British purchase ____ American goods, and the quantity of pounds supplied decreases.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Banks typically enga...
View Answer

When the U.S.dollar appreciates against the Mexican peso, the peso becomes , and the U.S.exchange rate .

Correct Answer
verified