Question 1

What is meant by economic exposure?

Accepted Answer

A)   The extent to which a firm's future international earning power is affected by changes in exchange rates
B)   The impact of currency exchange rate changes on the reported financial statements of a company
C)   The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values
D)   The extent to which the quantity of money in circulation rises faster than the stock of goods and services
E)   The extent of disparity in prices, when expressed in the same currency, of similar products in different countriesF) A) and C)
G) A) and B)

Question 2

Transaction exposure,a category of foreign exchange risk,refers to the impact of currency exchange rate changes on the reported financial statements of a company.

Accepted Answer

A) True 
 B)False

Question 3

A French company wants to invest 20 million euros for three months.The company found that investing in a Thai money market account will give it a higher interest rate than domestic investments.Which of the following is true about this investment?

Accepted Answer

A)   The investment is risk-free because money market investments are considered to be equivalent to bank deposits.
B)   The investment is not risk-free because foreign currency movements in the intervening period can affect the profitability of the firm.
C)   The investment is risk-free because such investments also lock foreign exchange rates for the duration of the investment.
D)   The investment is not risk-free because money market instruments are considered to be the most speculative of all investments.
E)   The investment is risk-free because the Thai money market is considered to be more stable and secure than other markets.F) A) and B)
G) A) and C)

Question 4

Which of the following is true of the differences in relative demand and supply of currencies?

Accepted Answer

A)   They cannot be used to explain the determination of exchange rates.
B)   While they provide an understanding of the major factors underlying exchange rates, they exclude minor factors.
C)   They provide a high level understanding of exchange rates.
D)   While they provide an accurate explanation for appreciation of currencies, they fail to explain depreciation.
E)   They cannot explain or predict when the demand of a particular currency would exceed its supply and vice versa.F) None of the above
G) B) and C)

Question 5

Which of the following has no impediments to the free flow of goods and services,such as trade barriers?

Accepted Answer

A)   Economic Union
B)   Currency Board
C)   Efficient market
D)   Carry trade
E)   European Monetary SystemF) C) and D)
G) A) and E)

Question 6

When is the phenomenon of capital flight most likely to occur?

Accepted Answer

A)   When the recovery phase post an economic depression nears its end
B)   When the value of domestic currency depreciates rapidly because of hyperinflation
C)   When a country's economic prospects are stable and indicate growth
D)   When interest rates are low for a prolonged period of time
E)   When governments lift convertibility restrictions on their currencyF) A) and B)
G) None of the above

Question 7

Which of the following refers to carry trade?

Accepted Answer

A)   Providing insurance or hedging against the risks that arise from volatile changes in exchange rates
B)   A transaction between two parties that involves exchanging currency and executing a deal at some specific date in the future
C)   Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
D)   The purchase of securities in one market for immediate resale in another to profit from a price discrepancy
E)   Borrowing in one currency where interest rates are low and then using the proceeds to invest in another currency where interest rates are highF) C) and D)
G) A) and E)

Question 8

The integration of financial centers implies there can be no significant difference in exchange rates quoted in the foreign exchange trading centers.

Accepted Answer

A) True 
 B)False

Question 9

In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.This relationship is referred to as the _____.

Accepted Answer

A)   PPP theory puzzle
B)   lead strategy
C)   Fisher effect
D)   bandwagon effect
E)   international Fisher effectF) B) and D)
G) B) and C)

Question 10

How does an increase in money supply in an economy lead to inflation?

Accepted Answer

A government increasing the money supply...

Question 11

_____,a category of foreign exchange risk,refers to the extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values.

Accepted Answer

A)   Economic exposure
B)   Transaction exposure
C)   Translation exposure
D)   Countertrade
E)   Carry tradeF) All of the above
G) B) and C)

Question 12

Which of the following is true of the efficient market school of thought toward exchange rate forecasting?

Accepted Answer

A)   Forward rates are not unbiased predictors of future spot rates.
B)   Accurate predictions of future spot rates can be calculated from publicly available information.
C)   Prices do not reflect all available information about the market.
D)   Inaccuracies in predictions will not be consistently above or below future spot rates; they will be random.
E)   Forecasts might provide better predictions of future spot rates than forward exchange rates do.F) B) and C)
G) A) and C)

Question 13

A lead strategy involves:

Accepted Answer

A)   delaying foreign currency payables when a currency is expected to appreciate.
B)   delaying foreign currency payables when a currency is expected to depreciate.
C)   attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate.
D)   attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate.
E)   delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate.F) B) and E)
G) B) and D)

Question 14

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is ¥120 = $1,and the New York yen/dollar exchange rate at the same time (10 a.m.New York time) is ¥123 = $1.Which of the following transactions would yield immediate profit?

Accepted Answer

A)   Forward exchange
B)   Carry trade
C)   Currency swap
D)   Arbitrage
E)   Currency speculationF) B) and C)
G) B) and D)

Question 15

Since translation exposure,a category of foreign exchange risk,is concerned with the present measurement of past events,the resulting accounting gains or losses are said to be unrealized,and therefore unimportant.

Accepted Answer

A) True 
 B)False  False

Question 16

Which of the following is concerned with the present measurement of past events?

Accepted Answer

A)   Economic exposure
B)   Transaction exposure
C)   Arbitrage
D)   Translation exposure
E)   Currency speculationF) All of the above
G) A) and B) D

Question 17

Theoretically,a country in which price inflation is very high should expect to see its currency depreciate against that of countries in which inflation rates are lower.

Accepted Answer

A) True 
 B)False

Question 18

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  True

Question 19

Which of the following is a vehicle currency due to its central role in foreign exchange deals?

Accepted Answer

A)   South African rand
B)   U.S. dollar
C)   British pound
D)   Japanese yen
E)   Chinese renminbiF) B) and D)
G) A) and E)

Question 20

A U.S.company that imports laptop computers from Japan knows that in 30 days it must pay in yen to a Japanese supplier when a shipment arrives.The company will pay the Japanese supplier ¥150,000 for each computer,and the current dollar/yen spot exchange rate is $1 = ¥110.The importer can sell the computers the day they arrive for $1,600 each.However,the importer will not have the funds to pay the Japanese supplier until the computers have been sold.The importer enters into a 30-day forward exchange transaction with a foreign exchange dealer at $1 = ¥105.Which of the following will happen if the exchange rate after 30 days is $1 = ¥90?

Accepted Answer

A)   The importer will earn a profit of approximately $236 per computer.
B)   The importer will earn a profit of approximately $171 per computer.
C)   The importer will earn a profit of approximately $65 per computer.
D)   The importer will incur a loss of approximately $67 per computer.
E)   The importer will incur a loss of approximately $105 per computer.F) A) and C)
G) B) and D)

Exam 10: The Foreign Exchange Market

What is meant by economic exposure?

Correct Answer
verified

Transaction exposure,a category of foreign exchange risk,refers to the impact of currency exchange rate changes on the reported financial statements of a company.

Correct Answer
verified

A French company wants to invest 20 million euros for three months.The company found that investing in a Thai money market account will give it a higher interest rate than domestic investments.Which of the following is true about this investment?

Correct Answer
verified

Which of the following is true of the differences in relative demand and supply of currencies?

Correct Answer
verified

Which of the following has no impediments to the free flow of goods and services,such as trade barriers?

Correct Answer
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When is the phenomenon of capital flight most likely to occur?

Correct Answer
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Which of the following refers to carry trade?

Correct Answer
verified

The integration of financial centers implies there can be no significant difference in exchange rates quoted in the foreign exchange trading centers.

Correct Answer
verified

In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.This relationship is referred to as the _____.

Correct Answer
verified

How does an increase in money supply in an economy lead to inflation?

Correct Answer
verified
A government increasing the money supply...
View Answer

_____,a category of foreign exchange risk,refers to the extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values.

Correct Answer
verified

Which of the following is true of the efficient market school of thought toward exchange rate forecasting?

Correct Answer
verified

A lead strategy involves:

Correct Answer
verified

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is ¥120 = $1,and the New York yen/dollar exchange rate at the same time (10 a.m.New York time) is ¥123 = $1.Which of the following transactions would yield immediate profit?

Correct Answer
verified

Since translation exposure,a category of foreign exchange risk,is concerned with the present measurement of past events,the resulting accounting gains or losses are said to be unrealized,and therefore unimportant.

Correct Answer
verified
False

Which of the following is concerned with the present measurement of past events?

Correct Answer
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D

Theoretically,a country in which price inflation is very high should expect to see its currency depreciate against that of countries in which inflation rates are lower.

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
True

Which of the following is a vehicle currency due to its central role in foreign exchange deals?

Correct Answer
verified

Correct Answer
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Exam 10: The Foreign Exchange Market

What is meant by economic exposure?

Correct AnswerverifiedShow Answer

Transaction exposure,a category of foreign exchange risk,refers to the impact of currency exchange rate changes on the reported financial statements of a company.

Correct AnswerverifiedShow Answer

A French company wants to invest 20 million euros for three months.The company found that investing in a Thai money market account will give it a higher interest rate than domestic investments.Which of the following is true about this investment?

Correct AnswerverifiedShow Answer

Which of the following is true of the differences in relative demand and supply of currencies?

Correct AnswerverifiedShow Answer

Which of the following has no impediments to the free flow of goods and services,such as trade barriers?

Correct AnswerverifiedShow Answer

When is the phenomenon of capital flight most likely to occur?

Correct AnswerverifiedShow Answer

Which of the following refers to carry trade?

Correct AnswerverifiedShow Answer

The integration of financial centers implies there can be no significant difference in exchange rates quoted in the foreign exchange trading centers.

Correct AnswerverifiedShow Answer

In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.This relationship is referred to as the _____.

Correct AnswerverifiedShow Answer

How does an increase in money supply in an economy lead to inflation?

Correct AnswerverifiedA government increasing the money supply...View AnswerShow Answer

_____,a category of foreign exchange risk,refers to the extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values.

Correct AnswerverifiedShow Answer

Which of the following is true of the efficient market school of thought toward exchange rate forecasting?

Correct AnswerverifiedShow Answer

A lead strategy involves:

Correct AnswerverifiedShow Answer

Assume that the yen/dollar exchange rate quoted in London at 3 p.m.is ¥120 = $1,and the New York yen/dollar exchange rate at the same time (10 a.m.New York time) is ¥123 = $1.Which of the following transactions would yield immediate profit?

Correct AnswerverifiedShow Answer

Since translation exposure,a category of foreign exchange risk,is concerned with the present measurement of past events,the resulting accounting gains or losses are said to be unrealized,and therefore unimportant.

Correct AnswerverifiedFalse

Which of the following is concerned with the present measurement of past events?

Correct AnswerverifiedD

Theoretically,a country in which price inflation is very high should expect to see its currency depreciate against that of countries in which inflation rates are lower.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

Which of the following is a vehicle currency due to its central role in foreign exchange deals?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow 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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A government increasing the money supply...
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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False

Correct Answer
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D

Correct Answer
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Correct Answer
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True

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Correct Answer
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