21.
In the foreign exchange market, the ............of one country is traded for the .............of another country.
A
currency; currency
B
currency; financial instruments
C
currency; goods
D
goods; goods
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In the foreign exchange market, the ............of one country is traded for the .............of another country.
currency; currency
currency; financial instruments
currency; goods
goods; goods
In a quote exchange rate, the currency that is to be purchase with another currency is called the
liquid currency
foreign currency
local currency
base currency
If transaction exposure are in same dates, then it can be hedged
By purchasing single forward contract
By purchasing multiple forward contract
Cannot be hedged by forward contracts
None of the above
If the U.S. dollar appreciates relative to the British pound,
it will take fewer dollars to purchase a pound
it will take more dollars to purchase a pound
it is called a weakening of the dollar
both a & c
If purchasing power parity were to hold even in the short run, then:
real exchange rates should tend to decrease over time;
quoted nominal exchange rates should be stable over time.
real exchange rates should tend to increase over time;
real exchange rates should be stable over time;
If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with
international monetary credits.
dollars.
yuan, the Chinese currency.
euros, or any other third currency.
If one anticipates that the pound sterling is going to appreciate against the US dollar, one might speculate by ..............pound call options or .............pound put options.
buying; buying
selling; buying
selling; selling
buying; selling
If inflation is expected to be 5 per cent higher in the United Kingdom than in Switzerland:
purchasing power parity would predict that the UK spot rate should decline by about 5 per cent;
the theory of purchasing power parity would predict a drop in nominal interest rates in the United Kingdom of approximately 5 per cent;
expectations theory would suggest that the spot exchange rates between the two countries should remain unchanged over the long run;
the efficient market hypothesis suggests that no predictions can be made under a system of freely floating rates.
Hedging is used by companies to:
Decrease the variability of tax paid
Decrease the spread between spot and forward market quotes
Increase the variability of expected cash flows
Decrease the variability of expected cash flows
Given a home country and a foreign country, purchasing power parity suggests that:
the home currency will appreciate if the current home inflation rate exceeds the current foreign inflation rate;
the home currency will depreciate if the current home interest rate exceeds the current foreign interest rate;
the home currency will depreciate if the current home inflation rate exceeds the current foreign inflation rate.
the home currency will depreciate if the current home inflation rate exceeds the current foreign interest rate;
Forward premium / differential depends upon
Currencies fluctuation
Interest rate differential between two countries
Demand & supply of two currencies
Stock market returns
Foreign currency forward market is
An over the counter unorganized market
Organized market without trading
Organized listed market
Unorganized listed market
Exchange rates
are always fixed
fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied
fluctuate to equate imports and exports
fluctuate to equate rates of interest in various countries
Covered interest rate parity occurs as the result of:
the actions of market-makers
interest rate arbitrage
purchasing power parity
stabilising speculation
Counterparty risk is:
The risk of loss when exchange rates change during the period of a financial contract
Based on the notional amount of the contract
The risk of loss if the other party to a financial contract fails to honour its obligation
Present only with exchange-traded options
By definition, currency appreciation occurs when
the value of all currencies fall relative to gold.
the value of all currencies rise relative to gold.
the value of one currency rises relative to another currency.
the value of one currency falls relative to another currency.
Ask quote is for
Seller
Buyer
Hedger
Speculator
Arbitrageurs in foreign exchange markets:
attempt to make profits by outguessing the market)
make their profits through the spread between bid and offer rates of exchange)
take advantage of the small inconsistencies that develop between markets)
need foreign exchange in order to buy foreign goods)
An economist will define the exchange rate between two currencies as the:
Amount of one currency that must be paid in order to obtain one unit of another currency
Difference between total exports and total imports within a country
Price at which the sales and purchases of foreign goods takes place
Ratio of import prices to export prices for a particular country
An arbitrageur in foreign exchange is a person who
earns illegal profit by manipulating foreign exchange
causes differences in exchange rates in different geographic markets
simultaneously buys large amounts of a currency in one market and sell it in another market
None of the above