Question 1

The impact of currency exchange rates on the reported financial statements of a company is called economic exposure.

Accepted Answer

A) True 
 B)False

Question 2

Discuss the two schools of thought on exchange rate forecasting.

Accepted Answer

There are two schools of thought on whet...

Question 3

A(n)  _____ is quoted for 30 days, 90 days, and 180 days into the future.

Accepted Answer

A)   forward exchange rate
B)   currency swap
C)   spot exchange rate
D)   arbitrageE) A) and B)
F) A) and C)

Question 4

Compare and contrast currencies that are freely convertible, externally convertible, and nonconvertible.

Accepted Answer

A country's currency is said to be freely convertible when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it. In contrast, a currency is said to be externally convertible if only nonresidents may convert it into a foreign currency without limitations. Finally, a currency is nonconvertible when neither residents nor nonresidents are allowed to convert it into a foreign currency.

Question 5

Currency _____ typically involves the long-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.

Accepted Answer

A)   hedging
B)   risk mitigation
C)   speculation
D)   arbitrageE) A) and D)
F) All of the above

Question 6

To minimize the risk of an unanticipated change in exchange rates, a company can protect itself by entering into a forward exchange contract.

Accepted Answer

A) True 
 B)False

Question 7

When two parties agree to exchange currency and execute the deal immediately, the transaction is a _____.

Accepted Answer

A)   futures exchange
B)   carry trade
C)   spot exchange
D)   forward exchangeE) All of the above
F) B) and C)

Question 8

The foreign exchange market is a market for converting the currency of one country into that of another country.

Accepted Answer

A) True 
 B)False

Question 9

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) C) and D)
F) B) and D)

Question 10

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

Accepted Answer

The foreign exchange market serves four ...

Question 11

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) A) and D)
F) A) and B)

Question 12

Describe translation exposure. How can translation exposure be minimized?

Accepted Answer

Translation exposure is the impact of cu...

Question 13

_____ are reported on a real time basis on many financial Web sites 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) C) and D)
F) A) and B)

Question 14

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 from investing abroad.E) A) and D)
F) B) and C)

Question 15

The _____ 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)   purchasing power parity theory
B)   efficient market theory
C)   international Fisher effect
D)   law of one priceE) B) and C)
F) A) and C)

Question 16

If $1 bought more yen with a spot exchange than with a 30-day forward exchange it indicates the dollar is expected to depreciate against the yen in the next 30 days. When this occurs, we say the dollar is selling at a premium on the 30-day forward market.

Accepted Answer

A) True 
 B)False  False

Question 17

Which of the following occurs when traders start moving as a herd in the same direction at the same time?

Accepted Answer

A)   Fisher effect
B)   Bandwagon effect
C)   Arbitrage
D)   Decoupling of marketsE) B) and D)
F) B) and C) B

Question 18

What are the two main functions of the foreign exchange market?

Accepted Answer

A)   Trading of equities of foreign companies and currency conversion
B)   Reducing currency volatility and setting interest rates
C)   Insuring companies against interest rate risk and enabling imports and exports
D)   Currency conversion and providing some insurance against foreign exchange riskE) All of the above
F) A) and B)

Question 19

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) A) and D)
F) B) and D)

Question 20

The international Fisher effect:

Accepted Answer

A)   has proven to have substantial power at predicting long-run changes in forward exchange rates.
B)   has proven to have substantial power at predicting short-run changes in spot exchange rates.
C)   is not a good predictor of long-run changes in forward exchange rates.
D)   is not a good predictor of short-run changes in spot exchange rates.E) A) and B)
F) A) and C)

Exam 10: The Foreign Exchange Market

The impact of currency exchange rates on the reported financial statements of a company is called economic exposure.

Correct Answer
verified

Discuss the two schools of thought on exchange rate forecasting.

Correct Answer
verified
There are two schools of thought on whet...
View Answer

A(n) _____ is quoted for 30 days, 90 days, and 180 days into the future.

Correct Answer
verified

Compare and contrast currencies that are freely convertible, externally convertible, and nonconvertible.

Currency _____ typically involves the long-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.

Correct Answer
verified

To minimize the risk of an unanticipated change in exchange rates, a company can protect itself by entering into a forward exchange contract.

Correct Answer
verified

When two parties agree to exchange currency and execute the deal immediately, the transaction is a _____.

Correct Answer
verified

The foreign exchange market is a market for converting the currency of one country into that of another country.

Correct Answer
verified

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 Answer
verified

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

Correct Answer
verified
The foreign exchange market serves four ...
View 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 Answer
verified

Describe translation exposure. How can translation exposure be minimized?

Correct Answer
verified
Translation exposure is the impact of cu...
View Answer

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

Correct Answer
verified

Restrictions on external convertibility can:

Correct Answer
verified

The _____ 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 Answer
verified

If $1 bought more yen with a spot exchange than with a 30-day forward exchange it indicates the dollar is expected to depreciate against the yen in the next 30 days. When this occurs, we say the dollar is selling at a premium on the 30-day forward market.

Correct Answer
verified
False

Which of the following occurs when traders start moving as a herd in the same direction at the same time?

Correct Answer
verified
B

What are the two main functions of the foreign exchange market?

Correct Answer
verified

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

Correct Answer
verified

The international Fisher effect:

Correct Answer
verified

Exam 10: The Foreign Exchange Market

The impact of currency exchange rates on the reported financial statements of a company is called economic exposure.

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

A(n) _____ is quoted for 30 days, 90 days, and 180 days into the future.

Correct AnswerverifiedShow Answer

Compare and contrast currencies that are freely convertible, externally convertible, and nonconvertible.

Currency _____ typically involves the long-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.

Correct AnswerverifiedShow Answer

To minimize the risk of an unanticipated change in exchange rates, a company can protect itself by entering into a forward exchange contract.

Correct AnswerverifiedShow Answer

When two parties agree to exchange currency and execute the deal immediately, the transaction is a _____.

Correct AnswerverifiedShow Answer

The foreign exchange market is a market for converting the currency of one country into that of another country.

Correct AnswerverifiedShow 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

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

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

Describe translation exposure. How can translation exposure be minimized?

Correct AnswerverifiedTranslation exposure is the impact of cu...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Restrictions on external convertibility can:

Correct AnswerverifiedShow Answer

The _____ 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

If $1 bought more yen with a spot exchange than with a 30-day forward exchange it indicates the dollar is expected to depreciate against the yen in the next 30 days. When this occurs, we say the dollar is selling at a premium on the 30-day forward market.

Correct AnswerverifiedFalse

Which of the following occurs when traders start moving as a herd in the same direction at the same time?

Correct AnswerverifiedB

What are the two main functions of the foreign exchange market?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The international Fisher effect:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
There are two schools of thought on whet...
View Answer

Correct Answer
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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
verified
The foreign exchange market serves four ...
View Answer

Correct Answer
verified

Correct Answer
verified
Translation exposure is the impact of cu...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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False

Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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