Copyright?2023PearsonEducation,Inc.

MultinationalBusinessFinance,16e(Eiteman/Stonehill/Moffett)

Chapter5TheForeignExchangeMarket

5.1FunctionsoftheForeignExchangeMarket

1)WhichofthefollowingisNOTtrueregardingthemarketforforeignexchange?

A)Themarketprovidesthephysicalandinstitutionalstructurethroughwhichthemoneyofonecountryisexchangedforanother.

B)Therateofexchangeisdeterminedinthemarket.

C)Foreignexchangetransactionsarephysicallycompletedintheforeignexchangemarket.

D)Alloftheabovearetrue.

Answer:D

Diff:1

L.O.:5.1FunctionsoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

2)A/An________isanagreementbetweenabuyerandsellerthatafixedamountofonecurrencywillbedeliveredataspecifiedrateforsomeothercurrency.

A)Eurodollartransaction

B)import/exportexchange

C)foreignexchangetransaction

D)interbankmarkettransaction

Answer:C

Diff:1

L.O.:5.1FunctionsoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

3)The________isthemechanismbywhichparticipantstransferpurchasingpowerbetweencountries,obtainorprovidecreditforinternationaltradetransactions,andminimizeexposuretotherisksofexchangeratechanges.

A)futuresmarket

B)federalopenmarket

C)foreignexchangemarket

D)LIBOR

Answer:C

Diff:1

L.O.:5.1FunctionsoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

4)WhichofthefollowingisNOTamotivationidentifiedbytheauthorsasafunctionoftheforeignexchangemarket?

A)thetransferofpurchasingpowerbetweencountries

B)obtainingorprovidingcreditforinternationaltradetransactions

C)minimizingtherisksofexchangeratechanges

D)Alloftheabovewereidentifiedasfunctionsoftheforeignexchangemarket.

Answer:D

Diff:1

L.O.:5.1FunctionsoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

5)Businessfirmsincountrieswithexchangecontrols,forexample,China(mainland),oftenmustsurrenderforeignexchangeearnedfromexportstothecentralbankatthedailyfixingprice.

Answer:TRUE

Diff:1

L.O.:5.1FunctionsoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

6)Theforeignexchangemarketprovidesthephysicalandinstitutionalstructurethroughwhichthreetypicalfunctionsareaccomplish.Listandexplainthreefunctionsoftheforeignexchangemarket.

Answer:Theforeignexchangemarketisthemechanismbywhichparticipantstransferpurchasingpowerbetweencountriesbyexchangingmoney,obtainorprovidecreditforinternationaltradetransactions,andminimizeexposuretotherisksofexchangeratechanges.1)Thetransferofpurchasingpowerisnecessarybecauseinternationaltradeandcapitaltransactionsnormallyinvolvepartieslivingincountrieswithdifferentnationalcurrencies.Usuallyeachpartywantstodealinitsowncurrency,butthetradeorcapitaltransactioncanbeinvoicedinonlyonecurrency.Hence,onepartymustdealinaforeigncurrency.2)Becausethemovementofgoodsbetweencountriestakestime,inventoryintransitmustbefinanced.Theforeignexchangemarketprovidesasourceofcredit.Specializedinstruments,suchasbankers'acceptancesandlettersofcreditareavailabletofinanceinternationaltrade.3)Theforeignexchangemarketprovides"hedging"facilitiesfortransferringforeignexchangerisktosomeoneelsemorewillingtocarryrisk.

Diff:1

L.O.:5.1FunctionsoftheForeignExchangeMarket

Skill:Conceptual

AACSB:Applicationofknowledge

5.2StructureoftheForeignExchangeMarket

1)Whiletradinginforeignexchangetakesplaceworldwide,themajorcurrencytradingcentersarelocatedin:

A)London,NewYork,Singapore,HongKong,andTokyo.

B)NewYork,Zurich,andHongKong.

C)Paris,Frankfurt,andLondon.

D)LosAngeles,NewYork,andLondon.

Answer:A

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

2)Theauthorsdescribetheoldtwotiersofforeignexchangemarketsmadeof:

A)bankandnonbankforeignexchange.

B)commercialandinvestmenttransactions.

C)interbankandclientmarkets.

D)clientandretailmarket.

Answer:C

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

3)Itischaracteristicofforeignexchangedealersto:

A)bringbuyersandsellersofcurrenciestogetherbutnevertobuyandholdaninventoryofcurrencyforresale.

B)actasmarketmakers,willingtobuyandsellthecurrenciesinwhichtheyspecialize.

C)tradeonlywithclientsintheretailmarketandneveroperateinthewholesalemarketforforeignexchange.

D)Alloftheabovearecharacteristicsofforeignexchangedealers.

Answer:B

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

4)Whichofthefollowingmaybeparticipantsintheforeignexchangemarkets?

A)bankandnonbankforeignexchangedealers

B)centralbanksandtreasuries

C)speculatorsandarbitrageurs

D)alloftheabove

Answer:D

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

5)________seektoprofitfromtradinginthemarketitselfratherthanhavingtheforeignexchangetransactionbeingincidentaltotheexecutionofacommercialorinvestmenttransaction.

A)Speculatorsandarbitrageurs

B)Foreignexchangebrokers

C)Centralbanks

D)Treasuries

Answer:A

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

6)Intheforeignexchangemarket,________seekalloftheirprofitfromexchangeratechangeswhile________seektoprofitfromsimultaneousexchangeratedifferencesindifferentmarkets.

A)wholesalers;retailers

B)centralbanks;treasuries

C)speculators;arbitrageurs

D)dealers;brokers

Answer:C

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

7)Foreignexchange________earnaprofitbyabid-askspreadoncurrenciestheypurchaseandsell.Foreignexchange________,ontheotherhand,earnaprofitbybringingtogetherbuyersandsellersofforeigncurrenciesandearningacommissiononeachsaleandpurchase.

A)centralbanks;treasuries

B)dealers;brokers

C)brokers;dealers

D)speculators;arbitrageurs

Answer:B

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

8)________areagentswhofacilitatetradingbetweendealerswithoutthemselvesbecomingprincipalsinthetransaction.

A)Centralbanks

B)Foreignexchangebrokers

C)Arbitrageurs

D)Foreignexchangedealers

Answer:B

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

9)Amongthetypesoftradesortradersthatremainoutsidethecoreforeignexchangemarkettodayare:

A)centralbanks.

B)smallbanks.

C)largebanks.

D)speculators.

Answer:B

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

10)Followingthediscoveryofsignificantmarketmanipulationandcoordinatedmalfeasancein2013and2014intheforeignexchangemarket,theBankforInternationalSettlements(BIS)proposedasetofglobalprinciples(GlobalCode)madeofthefollowingleadingprinciplesEXCEPT:

A)Ethics.

B)Informationsharing.

C)Confirmationandsettlementprocesses.

D)Capital.

Answer:D

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

11)Becausethemarketforforeignexchangeisworldwide,thevolumeofforeignexchangecurrencytransactionsislevelthroughoutthe24-hourday.

Answer:FALSE

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

12)Foreignexchangemarketsarearelativelyrecentphenomenon,beginningwiththeagreementatBrettonWoods.

Answer:FALSE

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Conceptual

AACSB:Applicationofknowledge

13)Dealersinforeignexchangedepartmentsatlargeinternationalbanksactasmarketmakersandmaintaininventoriesofthesecuritiesinwhichtheyspecialize.

Answer:TRUE

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

14)Currencytradinglacksprofitabilityforlargecommercialandinvestmentbanksbutismaintainedasaserviceforcorporateandinstitutionalcustomers.

Answer:FALSE

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

15)Theprimarymotiveofforeignexchangeactivitiesbymostcentralbanksisprofit.

Answer:FALSE

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

16)Banks,andafewnonbankforeignexchangedealers,operateONLYintheinterbankmarkets.

Answer:FALSE

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

17)Dealersintheforeignexchangedepartmentsoflargeinternationalbanksoftenfunctionas"marketmakers."Suchdealersstandwillingatalltimestobuyandsellthosecurrenciesinwhichtheyspecializeandthusmaintainan"inventory"positioninthosecurrencies.

Answer:TRUE

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

18)Currencytradingisaservicecenterratherthanaprofitcenterforcommercialandinvestmentbanks.

Answer:FALSE

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

19)Forindividualsandfirmsinvolvedintheimportandexportofgoodsandservices,usingtheforeignexchangemarketisnecessary,butincidental,totheirunderlyingcommercialorinvestmentpurpose.

Answer:TRUE

Diff:2

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

20)Mosttransactionsintheinterbankforeignexchangetradingareprimarilyconductedviatelecommunicationtechniquesandlittleisconductedface-to-face.

Answer:TRUE

Diff:1

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

21)Whataresomeofthereasonscentralbanksandtreasuriesentertheforeignexchangemarkets,andinwhatimportantwaysaretheydifferentfromotherforeignexchangeparticipants?

Answer:Centralbanksandtreasuriesentertheforeignexchangemarkettoacquire/spendtheirownforeignexchangereservesandtoinfluencethepriceatwhichtheirowncurrencyistraded.Unlikeothermarketparticipants,theyarenotprofitoriented.Instead,theymaywillinglytakealossiftheythinkitisintheirbestnationalinterest.

Diff:3

L.O.:5.2StructureoftheForeignExchangeMarket

Skill:Conceptual

AACSB:Applicationofknowledge

5.3TransactionsintheForeignExchangeMarket

1)________isNOToneofthethreecategoriesreportedforforeignexchange.

A)Spottransactions

B)Swaptransactions

C)Striptransactions

D)Forwardtransactions

Answer:C

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

2)A________transactionintheforeignexchangemarketrequiresanalmostimmediatedelivery(typicallywithintwodays)offoreignexchange.

A)spot

B)forward

C)futures

D)noneoftheabove

Answer:A

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

3)A________transactionintheforeignexchangemarketrequiresdeliveryofforeignexchangeatsomefuturedate.

A)spot

B)forward

C)swap

D)currency

Answer:B

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

4)AforwardcontracttodeliverBritishpoundsforU.S.dollarscouldbedescribedeitheras________or________.

A)buyingdollarsforward;buyingpoundsforward

B)sellingpoundsforward;sellingdollarsforward

C)sellingpoundsforward;buyingdollarsforward

D)sellingdollarsforward;buyingpoundsforward

Answer:C

Diff:2

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Conceptual

AACSB:Applicationofknowledge

5)Acommontypeofswaptransactionintheforeignexchangemarketisthe________wherethedealerbuysthecurrencyinthespotmarketandsellsthesameamountbacktothesamebankintheforwardmarket.

A)"forwardagainstspot"

B)"forspot"

C)"repurchaseagreement"

D)"spotagainstforward"

Answer:D

Diff:2

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

6)The________isaderivativeforwardcontractthatwascreatedinthe1990s.IthasthesamecharacteristicsanddocumentationrequirementsastraditionalforwardcontractsexceptthattheyareonlysettledinU.S.dollarsandtheforeigncurrencyinvolvedinthetransactionisnotdelivered.

A)nondeliverableforward

B)dollaronlyforward

C)virtualforward

D)internetforward

Answer:A

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

7)WhichofthefollowingisNOTtrueregardingnondeliverableforward(NDF)contracts?

A)NDFsareusedprimarilyforemergingmarketcurrencies.

B)PricingofNDFsreflectsbasicinterestratedifferentialsplusanadditionalpremiumchargedfordollarsettlement.

C)NDFscanonlybetradedbycentralbanks.

D)NDFsarecontractedoffshore.

Answer:C

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Conceptual

AACSB:Applicationofknowledge

8)A________transactionintheinterbankmarketisthesimultaneouspurchaseandsaleofagivenamountofforeignexchangefortwodifferentvaluedates.

A)spot

B)forward

C)swap

D)futures

Answer:C

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

9)Dailytradingvolumeintheforeignexchangemarketwasabout________per________in2019.

A)$6,600billion;month

B)$3,100billion;month

C)$6,600billion;day

D)$3,100billion;day

Answer:C

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

10)Thegreatestvolumeofdailyforeignexchangetransactionsare:

A)spottransactions.

B)forwardtransactions.

C)swaptransactions.

D)Thisquestionisinappropriatebecausethevolumeoftransactionsareapproximatelyequalacrossthethreecategoriesabove.

Answer:C

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

11)TheUnitedKingdomandUnitedStatestogethermakeupnearly________ofdailycurrencytrading.

A)30%

B)40%

C)50%

D)60%

Answer:D

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

12)ThetopthreecurrencypairstradedwiththeU.S.dollarare:

A)U.K.pound,ChineseYuan,Japaneseyen.

B)Swissfranc,euro,Japaneseyen.

C)U.K.pound,euro,Japaneseyen.

D)euro,ChineseYuan,Japaneseyen.

Answer:C

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

13)Thegreatestamountofforeignexchangetradingtakesplaceinthefollowingtwocities:

A)NewYorkandTokyo.

B)NewYorkandLondon.

C)LondonandFrankfurt.

D)LondonandTokyo.

Answer:B

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

14)Thefourcurrenciesthatconstituteabout50%ofallforeignexchangetradingare:

A)U.Kpound,Chineseyuan,euro,andJapaneseyen.

B)U.S.dollar,euro,Chineseyuan,andU.K.pound.

C)U.S.dollar,Japaneseyen,euro,andU.K.pound.

D)U.S.dollar,U.K.pound,yen,andChineseyuan.

Answer:C

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

15)Aspottransactionintheinterbankmarketforforeignexchangewouldtypicallyinvolveatwo-daydelayintheactualdeliveryofthecurrencies,whilesuchatransactionbetweenabankanditscommercialcustomerwouldnotnecessarilyinvolveatwo-daywait.

Answer:TRUE

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

16)NondeliverableForwardswereoriginallyenvisionedasamethodofcurrencyspeculation,butitisnowestimatedthat70%ofNDFsaretradingforhedgingpurposes.

Answer:FALSE

Diff:2

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

17)Ingeneral,NDFmarketsnormallydevelopforcountrycurrencieshavinglargecross-bordercapitalmovements,butstillsubjecttoconvertibilityrestrictions.

Answer:TRUE

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Conceptual

AACSB:Applicationofknowledge

18)NDFsaretradedandsettledinsidethecountryofthesubjectcurrency,andthereforearewithinthecontrolofthecountry'sgovernment.

Answer:FALSE

Diff:2

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

19)Acontracttodeliverdollarsforeurosinsixmonthsisboth"buyingeurosforwardfordollars"and"sellingdollarsforwardforeuros."

Answer:TRUE

Diff:2

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

20)Asyoumightexpect,theforeignexchangedailytradingvolumeininNewYorkCityisroughlytwiceaslargeasthedailytradingvolumeinLondon.

Answer:FALSE

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

21)Thelowlevelofinterestratesaroundtheglobeinrecentyears,combinedwithslowingeconomicgrowthandnewdebtissuances,hashadadampeningimpactontheswapmarket.

Answer:FALSE

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

22)Sincetheglobalfinancialcrisisof2008-2009,theChineserenminbi(yuan)hasbecomethemostwidelytradedcurrencywiththeU.S.dollarsurpassingtheeuro,yen,andpoundasdollartradingpairs.

Answer:FALSE

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

23)Swapandforwardtransactionsaccountforaninsignificantportionoftheforeignexchangemarket.

Answer:FALSE

Diff:1

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Recognition

AACSB:Applicationofknowledge

24)Definespot,forward,andswaptransactionsintheforeignexchangemarketandgiveanexampleofhoweachcouldbeused.

Answer:Spottransactionsareexchangingonecurrencyforanotherrightnow.Spottransactionsaretypicallyenteredintobecausethepartiesneedtoexchangeforeigncurrenciesthattheyhavereceivedintotheirdomesticcurrency,orbecausetheyhaveanobligationthatrequiresthemtoobtainforeigncurrency.

Forwardforeignexchangetransactionsareagreementsenteredintotodaytoexchangecurrenciesataparticularpriceatsomepointinthefuture.Forwardsmaybespeculativeorahedgeagainstunexpectedchangesinthepriceoftheothercurrency.

Swapsarethesimultaneouspurchaseandsaleofagivenamountofaforeignexchangefortwodifferentdates.Bothtransactionsareconductedwiththesamecounterparty.Aswapmaybeconsideredatechniqueforborrowinganothercurrencyonafullycollateralizedbasis.

Diff:2

L.O.:5.3TransactionsintheForeignExchangeMarket

Skill:Conceptual

AACSB:Applicationofknowledge

5.4ForeignExchangeRatesandQuotations

1)Aforeignexchange________isthepriceofonecurrencyexpressedintermsofanothercurrency.Aforeignexchange________isawillingnesstobuyorsellattheannouncedrate.

A)quote;rate

B)quote;quote

C)rate;quote

D)rate;rate

Answer:C

Diff:1

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Conceptual

AACSB:Applicationofknowledge

2)MostforeignexchangetransactionsarethroughtheU.S.dollar.Ifthetransactionisexpressedastheforeigncurrencyperdollarthisknownas________whereas________areexpressedasdollarsperforeignunit.

A)Europeanterms;indirect

B)Americanterms;direct

C)Americanterms;Europeanterms

D)Europeanterms;Americanterms

Answer:D

Diff:1

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Conceptual

AACSB:Applicationofknowledge

3)ThefollowingisanexampleofanAmericantermforeignexchangequote:

A)$20/￡

B)€0.85/$

C)￥100/€

D)noneoftheabove

Answer:A

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Conceptual

AACSB:Applicationofknowledge

4)FromtheviewpointofaBritishinvestor,whichofthefollowingwouldbeadirectquoteintheforeignexchangemarket?

A)SF2.40/￡

B)$1.50/￡

C)￡0.55/€

D)$0.90/€

Answer:C

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Conceptual

AACSB:Applicationofknowledge

5)A/An________quoteintheUnitedStateswouldbeforeignunitsperdollar,whilea/an________quotewouldbeindollarsperforeigncurrencyunit.

A)direct;direct

B)direct;indirect

C)indirect;indirect

D)indirect;direct

Answer:D

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Recognition

AACSB:Applicationofknowledge

6)IfthedirectquoteforaU.S.investorforBritishpoundsis$1.43/￡,thentheindirectquotefortheU.S.investorwouldbe________andthedirectquotefortheBritishinvestorwouldbe________.

A)￡0.699/$;￡0.699/$

B)$0.699/￡;￡0.699/$

C)￡1.43/￡;￡0.699/$

D)￡0.699/$;$1.43/￡

Answer:A

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Analytical

AACSB:Analyticalthinking

7)________makemoneyoncurrencyexchangesbythedifferencebetweenthe________price,orthepricetheyoffertopay,andthe________price,orthepriceatwhichtheyoffertosellthecurrency.

A)Dealers;ask;bid

B)Dealers;bid;ask

C)Brokers;ask;bid

D)Brokers;bid;ask

Answer:B

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Conceptual

AACSB:Applicationofknowledge

TABLE5.1

Usethetabletoanswerfollowingquestion(s).

8)RefertoTable5.1.Thecurrentspotrateofdollarsperpoundasquotedinanewspaperis________or________.

A)￡1.4484/$;$0.6904/￡

B)$1.4481/￡;￡0.6906/$

C)$1.4484/￡;￡0.6904/$

D)￡1.4487/$;$0.6903/￡

Answer:C

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Analytical

AACSB:Analyticalthinking

9)RefertoTable5.1.Theone-monthforwardbidpricefordollarsasdenominatedinJapaneseyenis:

A)-￥20.

B)-￥18.

C)￥129.74/$.

D)￥129.62/$.

Answer:D

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Analytical

AACSB:Analyticalthinking

10)RefertoTable5.1.Theaskpriceforthetwo-yearswapforaBritishpoundis:

A)$1.4250/￡.

B)$1.4257/￡.

C)-$230.

D)-$238.

Answer:B

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Analytical

AACSB:Analyticalthinking

11)RefertoTable5.1.Accordingtotheinformationprovidedinthetable,the6-monthyenissellingataforward________ofapproximately________perannum.(Usethemidratestomakeyourcalculations.)

A)discount;2.09%

B)discount;2.06%

C)premium;2.09%

D)premium;2.06%

Answer:C

Diff:2

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Analytical

AACSB:Analyticalthinking

12)Giventhefollowingexchangerates,whichofthemultiple-choicechoicesrepresentsapotentiallyprofitableintermarketarbitrageopportunity?

￥129.87/$

€1.1226/$

€0.00864/￥

A)￥115.69/€

B)￥114.96/€

C)$0.8908/€

D)$0.0077/￥

Answer:B

Diff:3

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Analytical

AACSB:Analyticalthinking

13)TheU.S.dollarsuddenlychangesinvalueagainsttheeuromovingfromanexchangerateof$0.8909/€to$0.8709/€.Thus,thedollarhas________by________.

A)appreciated;2.30%

B)depreciated;2.30%

C)appreciated;2.24%

D)depreciated;2.24%

Answer:A

Diff:3

L.O.:5.4ForeignExchangeRatesandQuotations

Skill:Analytical

AACSB:Analyticalthinking

14)AGermanfirmisattemptingtodeterminetheeuro/poundexchangerateandhasthefollowingexchangerateinformation:USD/pound=$1.5509/￡andtheUSD/eurorate=$1.2194/€.Therefore,theeuro/poundratemustbe:

A)￡1.2719/€.

B)€1.2719/￡.

C)€0.7316/￡.

D)€0.7863/￡.

Answer:B

Diff:2

L.O.:5.4For