Question 1

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Accepted Answer

A)   currency pairing
B)   carry trade
C)   currency exchange
D)   currency swapE) C) and D)
F) B) and C)

Question 3

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

Accepted Answer

A)   $1,000.
B)   $750.
C)   $1,500.
D)   $667.E) A) and B)
F) A) and C)

Question 4

Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m. is ¥120 = $1, and the yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1. A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby making a profit. The dealer has engaged in

Accepted Answer

A)   a currency swap.
B)   an arbitrage.
C)   an carry trade.
D)   a straddle.E) C) and D)
F) B) and C)

Question 5

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

Accepted Answer

A) True 
 B)False

Question 6

A(n)  ________ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Accepted Answer

A)   A follower strategy
B)   An interim strategy
C)   A lead strategy
D)   A lag strategyE) All of the above
F) A) and C)

Question 7

Restrictions on external convertibility can

Accepted Answer

A)   hamper foreign companies wishing to do business in that country.
B)   allow domestic companies to freely invest abroad.
C)   limit the amount of product a foreign company can produce in that country.
D)   limit domestic companies' ability to invest abroad.E) A) and B)
F) A) and C)

Question 8

What is the law of one price?

Accepted Answer

The law of one price states that in comp...

Question 9

Which of the following occurs when the quantity of money in circulation in a country rises faster than the country's stock of goods and services?

Accepted Answer

A)   inflation
B)   credit squeeze
C)   deflation
D)   production surplusE) All of the above
F) C) and D)

Question 10

What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs?

Accepted Answer

A)   translation exposure
B)   economic exposure
C)   transaction exposure
D)   risk exposureE) C) and D)
F) A) and D)

Question 11

Why do governments limit currency convertibility?

Accepted Answer

A)   to preserve foreign exchange reserves
B)   to spend foreign exchange reserves
C)   to keep domestic companies from investing abroad
D)   to allow nonresidents to convert money to foreign currenciesE) None of the above
F) A) and B)

Question 12

________ includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

Accepted Answer

A)   Economic exposure
B)   Transaction exposure
C)   Corporate financial exposure
D)   Translation exposureE) None of the above
F) All of the above

Question 13

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

Accepted Answer

A)   law of one price
B)   principle of consistent pricing
C)   model of fair pricing
D)   rational price theoryE) A) and B)
F) None of the above

Question 14

The rate at which one currency is converted into another is known as the

Accepted Answer

A)   exchange rate.
B)   currency swap rate.
C)   fluctuation rate.
D)   carry over rate.E) A) and B)
F) All of the above

Question 15

The Fisher Effect states that

Accepted Answer

A)   a country's "real" rate of interest is the sum of the "nominal" interest rate and the expected rate of inflation over the period for which the funds are to be lent.
B)   there is a weak relationship between inflation rates and interest rates.
C)   a country's "nominal" interest rate is the sum of the required "real" rate of interest and the expected rate of inflation over the period for which the funds are to be lent.
D)   when investors are free to transfer capital between countries, "nominal" interest rates will be the same in every country.E) A) and D)
F) A) and C)

Question 16

Carry trade is nonspeculative in nature.

Accepted Answer

A) True 
 B)False

Question 17

The purchasing power parity (PPP)  theory tells us that a country with a high inflation rate will

Accepted Answer

A)   export more goods to other countries.
B)   see depreciation in its currency exchange rate.
C)   import more goods from other countries.
D)   see an appreciation in its currency exchange rate.E) None of the above
F) A) and C)

Question 18

________ are reported on a real-time basis on many financial websites and are continually changing-their value being determined by supply and demand for that currency relative to others.

Accepted Answer

A)   Spot exchange rates
B)   Currency swaps
C)   Forward exchange rates
D)   Future exchange ratesE) None of the above
F) C) and D)

Question 19

If a country has an externally convertible currency

Accepted Answer

A)   neither residents nor nonresidents are allowed to convert it into a foreign currency.
B)   both residents and nonresidents can purchase unlimited amounts of a foreign currency with it.
C)   only nonresidents may convert it into a foreign currency without any limitations.
D)   the government limits convertibility to preserve foreign exchange reserves.E) None of the above
F) B) and D)

Question 20

How can a firm minimize its foreign exchange exposure?

Accepted Answer

There are several strategies a firm can ...

Exam 10: The Foreign Exchange Market

Carry trade is nonspeculative in nature.

Correct Answer
verified

If a country has an externally convertible currency

Correct Answer
verified

Restrictions on external convertibility can

Correct Answer
verified

________ are reported on a real-time basis on many financial websites and are continually changing-their value being determined by supply and demand for that currency relative to others.

Correct Answer
verified

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

Correct Answer
verified

What is the law of one price?

Correct Answer
verified
The law of one price states that in comp...
View Answer

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

Correct Answer
verified

Correct Answer
verified

The Fisher Effect states that

Correct Answer
verified

Which of the following occurs when the quantity of money in circulation in a country rises faster than the country's stock of goods and services?

Correct Answer
verified

The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will

Correct Answer
verified

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Correct Answer
verified

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

Correct Answer
verified

How can a firm minimize its foreign exchange exposure?

Correct Answer
verified
There are several strategies a firm can ...
View Answer

The rate at which one currency is converted into another is known as the

Correct Answer
verified

Why do governments limit currency convertibility?

Correct Answer
verified

What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs?

Correct Answer
verified

A(n) ________ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Correct Answer
verified

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

Correct Answer
verified

________ includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

Correct Answer
verified

Exam 10: The Foreign Exchange Market

Carry trade is nonspeculative in nature.

Correct AnswerverifiedShow Answer

If a country has an externally convertible currency

Correct AnswerverifiedShow Answer

Restrictions on external convertibility can

Correct AnswerverifiedShow Answer

________ are reported on a real-time basis on many financial websites and are continually changing-their value being determined by supply and demand for that currency relative to others.

Correct AnswerverifiedShow Answer

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

Correct AnswerverifiedShow Answer

What is the law of one price?

Correct AnswerverifiedThe law of one price states that in comp...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Fisher Effect states that

Correct AnswerverifiedShow Answer

Which of the following occurs when the quantity of money in circulation in a country rises faster than the country's stock of goods and services?

Correct AnswerverifiedShow Answer

The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will

Correct AnswerverifiedShow Answer

Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?

Correct AnswerverifiedShow Answer

The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.

Correct AnswerverifiedShow Answer

How can a firm minimize its foreign exchange exposure?

Correct AnswerverifiedThere are several strategies a firm can ...View AnswerShow Answer

The rate at which one currency is converted into another is known as the

Correct AnswerverifiedShow Answer

Why do governments limit currency convertibility?

Correct AnswerverifiedShow Answer

What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs?

Correct AnswerverifiedShow Answer

A(n) ________ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

Correct AnswerverifiedShow Answer

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

Correct AnswerverifiedShow Answer

________ includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

Correct AnswerverifiedShow Answer

Correct Answer
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The law of one price states that in comp...
View Answer

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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There are several strategies a firm can ...
View Answer

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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