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Related Flashcards
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Cards In This Set
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1. Which is not a function
of the foreign exchange market?
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a. to transfer funds from one nation to another
b. to finance trade
c. to diversify risks
d. to provide the facilities for hedging
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2. An increase in the euro price of the dollar represents:
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a. an
appreciation of the dollar
b. a depreciation of the dollar
c. an appreciation of the pound
d. a devaluation of the dollar
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3. A change from $1=€1 to $2=€1 represents
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a. depreciation
of the dollar
b. an appreciation of the dollar
c. a depreciation of the euro
d. none of the above
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4. A shortage of Euros with flexible exchange rates
results in:
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a. a depreciation of the euro
b. a
depreciation of the dollar
c. an appreciation of the dollar
d. no change in the exchange rate
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5. An effective exchange rate is a:
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a. spot rate
b. forward rate
c. a flexible exchange rate
d. weighted average of the exchange rates between the domestic
currency and the nation’s most important trade partners
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6. The exchange rate is kept within narrow limits in
different monetary centers by:
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a. hedging
b. exchange
arbitrage
c. interest arbitrage
d. speculation
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7. Hedging refers to:
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a. the acceptance of a foreign exchange risk
b. the covering of a foreign exchange risk
c. foreign exchange speculation
d. foreign exchange arbitrage
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8. A U.S. importer scheduled to make a payment of
€100,000 in three months can hedge his foreign exchange risk by:
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a. purchasing £100,000 in the forward market for
delivery in three months
b. selling €100,000 in the spot market for delivery
in three months
c. purchasing €100,000 in the forward market for delivery in three
months
d. selling €100,000 in the spot market for
delivery in three months
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9. If the three-month FR=$1/€1 and a speculator anticipates that
SR=$1.03/€1 in three months, he can earn a profit by:
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a. selling Euros forward
b. purchasing Euros forward
c. selling dollars forward
d. purchasing dollars forward
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10. Destabilizing speculation refers to the:
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a. sale of the foreign currency when the exchange rate falls or is
low
b. purchase of the foreign currency when the
exchange rate falls or is low
c. sale of the foreign currency when the exchange
rate rises or is high
d. all of the above
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a. smaller than the forward discount on the pound
b. equal to the forward discount on the pound
c. larger than the forward discount on the pound
d. none of the above.
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12. According to the theory of covered interest
arbitrage, if the interest differential in favor of the foreign country exceeds
the forward discount on the foreign currency, there will be a:
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a. capital inflow under covered interest arbitrage
b. capital
outflow under covered interest arbitrage
c. no capital flow under a covered interest
arbitrage
d. any of the above
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13. When the interest differential in favor of the
foreign country is equal to the forward premium on the foreign currency,
we:
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a. are at covered interest arbitrage parity
b. are not at covered interest arbitrage parity
c. may or may not be at covered interest arbitrage
parity
d. we cannot say without additional information
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14. The currency of the nation with the higher
interest rate is usually at a:
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a. forward
discount
b. forward premium
c. covered interest arbitrage parity
d. any of the above
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1. Which of the following is false?
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a. a credit transaction leads to a payment from
foreigners
b. a debit transaction leads to a payment to
foreigners
c. a credit transaction is entered with a negative sign
d. double-entry bookkeeping refers to each
transaction entered twice
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