1) Investor engage in _____ when they move funds into foreign currencies in order to take advantage to interest rates abroad that are higher than domestic interest rates ? a. currency arbitrage b. interest arbitrage c. short positions d. long positions
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2) Which of the following is not a reason why Joe Smith (an American) might participate as a demander in the foreign exchange market ? a. his desire to open a bank account in Japan b. his desire to purchase an automobile produced domestically c. his desire to travel to Europe d. his desire to purchase Treasury bills issued by the British government
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3) If Sweden’s currency depreciates relative to Norway’s currency ? a. Norway’s export goods become more expensive to Norway’s residents b. Norway’s exports goods become cheaper to Sweden’s residents c. Sweden’s export goods become cheaper to Norway’s residents d. Sweden’s export goods become cheaper to Sweden’s residents
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4) The franc is said to be selling at a _______ if the spot dollar price is $0.48 and the nine-month forward rate is $0.42 ? a. forward discount b. forward premium c. forward spread d. None of these
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5) Riskless transactions to take advantage of profit opportunities due to a price differential or a yield differential in excess of transaction costs are called ? a. differential actions b. cash transaction c. arbitrage d. forward transactions
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6) If the bank is selling francs for $0.45, then what is the implied franc price of the dollar ? a. 2.0 b. 1.999 c. 2.323 d. 2.222
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7) An important feature of a _______ is that the holder has the right but not the obligation to buy or sell currency ? a. Swap b. foreign exchange arbitrage c. foreign exchange option d. futures market contract
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8) The exchange rate is kept the same across geographically separate markets by ? a. hedging b. speculation c. government regulation d. arbitrage
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9) In a supply and demand diagram for Japanese yen, with the exchange rate in dollars per yen on the vertical axis, the demand schedule for yen is drawn sloping ? a. upward b. vertical c. downward d. horizontal
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10) The largest volume of foreign exchange trading takes place in ? a. China b. Germany c. United Kingdom d. USA
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11) During the era of dollar appreciation from 1981 to 1985 a main reason why the dollar did not fall in value was ? a. flows of foreign investment into the United States b. rising price inflation in the United States c. a substantial decrease in U.S imports d. a substantial increase in U.S exports
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12) Under a system of floating exchange rates the pound would depreciate in value if there occurs ? a. Price inflation in the United States b. an increase in U.S real income c. a decrease in the British money supply d. falling interest rates in Britain
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13) Suppose that a Swiss television set that costs 400 francs in Switzerland cost $200 in the United States. The exchange rate between the franc and the dollar is ? a. 2 francs per dollar b. 1 franc per dollar c. $2 per franc d. $3 per franc
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14) The most widely traded currency in the foreign exchange market is the ? a. euro b. Chinese Yuan c. British pound d. U.S dollar
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