1.
Which of the methods below may be viewed as most effective in protecting against economic exposure?
A
Futures market hedging
B
Forward contract hedges
C
Geographical diversification
D
Money market hedges
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Which of the methods below may be viewed as most effective in protecting against economic exposure?
Futures market hedging
Forward contract hedges
Geographical diversification
Money market hedges
Which of the following may be participants in the foreign exchange markets?
bank and nonbank foreign exchange dealers
central banks and treasuries
speculators and arbitragers
All of the above
Which of the following is true of foreign exchange markets?
The futures market is mainly used by hedgers while the forward market is mainly used for speculating.
The futures market and the forward market are mainly used for hedging.
The futures market is mainly used by speculators while the forward market is mainly used for hedging.
The futures market and the forward market are mainly used for speculating.
Which of the following is not an interest rate derivative used for interest rate management?
Swap
Cap
Floor
All of the above are interest rate derivatives
Which of the following is not a type of foreign exchange exposure?
Tax exposure
Translation exposure
Transaction exposure
Balance sheet exposure
Which of the following is NOT a criticism of a flexible exchange rate system?
Flexible exchange rates tend to be variable and therefore cause more uncertainty
Flexible exchange rate systems require discipline on the part of central banks that may not be forthcoming
Under flexible exchange rates, trading countries tend to rely more heavily upon tariffs and other restrictions
The flexible exchange rate system reduces the power of fiscal policy
When an enterprise has an unhedged receivable or payable denominated in a foreign currency and settlement of the obligation has not yet taken place, that firm is said to have:
Tax exposure
Operating exposure
Transaction exposure
Accounting exposure
Under a gold standard
a nations currency can be traded for gold at a fixed rate
a nations central bank or monetary authority has absolute control over its money supply
new discoveries of gold have no effect on money supply or prices
a & b
The Purchasing Power Parity should hold:
Under a fixed exchange rate regime
Under a flexible exchange rate regime
Under a dirty exchange rate regime
Always
The Purchasing Power Parity (PPP) theory is a good predictor of
all of the following:
the long-run tendencies between changes in the price level and the exchange rate of two countries
interest rate differentials between two countries when there are strong barriers preventing trade between the two countries
either b or c
The potential for an increase or decrease in the parents net worth and reported net income caused by a change in exchange rates since the last consolidation of international operations is a reflection of:
Translation exposure
Exchange rate exposure
Strategic exposure
Economic exposure
The impact of Foreign exchange rate on firm is called as
Operating Exposure
Transaction exposure
Translation exposure
Business risk
The exchange rate is the
total yearly amount of money changed from one countrys currency to another countrys currency
total monetary value of exports minus imports
amount of countrys currency which can exchanged for one ounce of gold
price of one countrys currency in terms of another countrys currency
The difference between the value of a call option and a put option with the same exercise price is due primarily to:
The greater liquidity of call options
The use of continuous as opposed to discrete discounting
The differential between the current stock price and the exercise price in present value terms
The effect of dividends on the two securities
The date of settlement for a foreign exchange transaction is referred to as:
Clearing date
Swap date
Maturity date
Value date
The current system of international finance is a
gold standard
fixed exchange rate system
floating exchange rate system
managed float exchange rate system
The Bretton Woods accord
of 1879 created the gold standard as the basis of international finance
of 1914 formulated a new international monetary system after the collapse of the gold standard
of 1944 formulated a new international monetary system after the collapse of the gold standard
None of the above
It is very difficult to interpret news in foreign exchange markets because:
very little information is publicly available
most of the news is foreign
it is difficult to know which news is relevant to future exchange rates
it is difficult to know whether the news has been obtained legally
Interest rate swaps are usually possible because international financial markets in different countries are
Efficient
Perfect
Imperfect
Both a & b
Interest Rate Parity (IRP) implies that:
Interest rates should change by an equal amount but in the opposite direction to the difference in inflation rates between two countries
The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency
The interest rates between two countries start in equilibrium, any change in the differential rate of inflation between the two countries tends to be offset over the longterm by an equal but opposite change in the spot exchange rate
In the long run real interest rate between two countries will be equal