Question 1

The ________ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

Accepted Answer

A)   spot exchange rate
B)   forward exchange rate
C)   futures exchange rate
D)   spreadE) C) and D)
F) None of the above

Question 2

________ uses price and volume data to determine past trends, which are expected to continue into the future.

Accepted Answer

A)   Technical analysis
B)   Fundamental analysis
C)   Efficient market theory
D)   Value investingE) B) and C)
F) A) and D)

Question 3

Which term refers to the rate at which one currency is converted into another?

Accepted Answer

A)   basis point
B)   spread
C)   exchange rate
D)   interchange rateE) B) and C)
F) A) and D)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?

Accepted Answer

A)   The United States offers a better deal.
B)   The deal is the same in both countries.
C)   Britain offers a better deal.
D)   A trader can make money by buying the shoes in Britain and selling in the United States at $50.E) B) and C)
F) All of the above

Question 6

________ are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Accepted Answer

A)   Carry trades
B)   Currency swaps
C)   Arbitrages
D)   Currency pairingE) B) and C)
F) A) and D)

Question 7

The purchasing power parity (PPP)  theory argues that the exchange rate will

Accepted Answer

A)   increase if a country is experiencing inflation.
B)   change even if relative prices remain unchanged.
C)   increase if a country is experiencing deflation.
D)   change if relative prices change.E) None of the above
F) A) and D)

Question 8

The purchasing power parity (PPP) theory is a strong predictor of short-run movements in exchange rates covering time spans of five years or less.

Accepted Answer

A) True 
 B)False

Question 9

A lag strategy involves

Accepted Answer

A)   attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate.
B)   delaying collection of foreign currency receivables if that currency is expected to appreciate.
C)   paying foreign currency payables before they are due when a currency is expected to appreciate.
D)   delaying collection of foreign currency receivables if that currency is expected to depreciate.E) C) and D)
F) None of the above

Question 10

The ________ helps consumers compare the relative prices of goods and services in different countries.

Accepted Answer

A)   interest rate
B)   GDP growth rate
C)   exchange rate
D)   tariff rateE) B) and D)
F) None of the above

Question 11

With the help of an example, explain how a tourist participates in the foreign exchange market.

Accepted Answer

The foreign exchange market is a market ...

Question 12

Governments allow convertibility to preserve their foreign exchange reserves.

Accepted Answer

A) True 
 B)False

Question 13

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen?

Accepted Answer

A)   The dollar will appreciate against the yen.
B)   The dollar will depreciate against the yen.
C)   The exchange rates will remain the same.
D)   The yen will appreciate against the dollar.E) B) and D)
F) A) and C)

Question 14

What are the main uses of foreign exchange markets for international business?

Accepted Answer

The foreign exchange market serves four ...

Question 15

Identify the correct statement about the PPP theory.

Accepted Answer

A)   It predicts that exchange rates are determined by relative prices.
B)   It yields accurate predictions of short-run movements in exchange rates.
C)   It best predicts exchange rate changes for countries with low rates of inflation.
D)   It includes transportation costs and trade tariffs.E) All of the above
F) A) and B)

Question 16

________ are exchange rates governing some specific future date foreign exchange transactions.

Accepted Answer

A)   Spot exchange rates
B)   Forward exchange rates
C)   Future exchange rates
D)   Currency swapsE) A) and B)
F) A) and C)

Question 17

There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates.

Accepted Answer

A) True 
 B)False

Question 18

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 foreign exchange market is not locat...

Question 19

Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about

Accepted Answer

A)   anticipated currency swap rates.
B)   stability in the global marketplace.
C)   future currency movements.
D)   the carry trades that will occur.E) B) and C)
F) A) and C)

Question 20

Discuss the two schools of thought on exchange rate forecasting.

Accepted Answer

There are two schools of thought on whet...

Exam 10: The Foreign Exchange Market

A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?

Correct AnswerverifiedShow Answer

The ________ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

Correct AnswerverifiedShow Answer

The ________ helps consumers compare the relative prices of goods and services in different countries.

Correct AnswerverifiedShow Answer

A lag strategy involves

Correct AnswerverifiedShow Answer

________ uses price and volume data to determine past trends, which are expected to continue into the future.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Discuss the two schools of thought on exchange rate forecasting.

Correct AnswerverifiedThere are two schools of thought on whet...View AnswerShow Answer

Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about

Correct AnswerverifiedShow Answer

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen?

Correct AnswerverifiedShow Answer

Which term refers to the rate at which one currency is converted into another?

Correct AnswerverifiedShow Answer

The purchasing power parity (PPP) theory argues that the exchange rate will

Correct AnswerverifiedShow Answer

The purchasing power parity (PPP) theory is a strong predictor of short-run movements in exchange rates covering time spans of five years or less.

Correct AnswerverifiedShow Answer

What are the main uses of foreign exchange markets for international business?

Correct AnswerverifiedThe foreign exchange market serves four ...View AnswerShow Answer

________ are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Correct AnswerverifiedShow 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?

Correct AnswerverifiedThe foreign exchange market is not locat...View AnswerShow Answer

________ are exchange rates governing some specific future date foreign exchange transactions.

Correct AnswerverifiedShow Answer

With the help of an example, explain how a tourist participates in the foreign exchange market.

Correct AnswerverifiedThe foreign exchange market is a market ...View AnswerShow Answer

Identify the correct statement about the PPP theory.

Correct AnswerverifiedShow Answer

There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates.

Correct AnswerverifiedShow Answer

Governments allow convertibility to preserve their foreign exchange reserves.

Correct AnswerverifiedShow Answer

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There are two schools of thought on whet...
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The foreign exchange market serves four ...
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The foreign exchange market is not locat...
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The foreign exchange market is a market ...
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