The foreign exchange market converts the currency of one country into that of another country.
T
F
When Krista traveled from the United States to England, she had to change her money from dollars into pounds. Krista was participating in the currency exchange market.
Carry trade is nonspeculative in nature.
The value of a currency is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies.
To minimize the risk of an unanticipated change in exchange rates, a company can protect itself by entering into a forward exchange contract.
If $1 bought more yen with a spot exchange than with a 30-day forward exchange, it indicates the dollar is expected to depreciate against the yen in the next 30 days. When this occurs, we say the dollar is selling at a premium on the 30-day forward market.
True
False
If the spot rate is $1 = 120, and the 30-day forward rate is $1 = ×130, the dollar is selling at a discount in the forward market.
The purchasing power parity (PPP) theory is a strong predictor of short-run movements in exchange rates covering time spans of five years or less.
Governments allow convertibility to preserve their foreign exchange reserves.
The international monetary system refers to the institutional arrangements that govern exchange rates.
The gold standard called for fixed exchange rates against the U.S. dollar.
Market forces have produced a stable dollar exchange rate under a floating exchange rate regime.
Implementing a fixed exchange rate regime increases the price inflation in countries.
Fixed exchange rates lead to speculation and uncertainty in the value of currencies.
A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.
The IMF does not expect governments to meet any obligations except to pay back the money it borrows.
The current system of foreign exchange is a mixed system of government intervention and speculative activity.
The rate at which one currency is converted into another is known as the
A) exchange rate.
B) currency swap rate.
C) uctuation rate.
D) carry over rate.
A
_______ arises from volatile changes in exchange rates. 1/1
A) Translational exposure
B) Foreign exchange risk
C) Economic exposure
D) Transactional exposure
B
What are the two main functions of the foreign exchange market?
A) trading foreign company equities and converting currency
B) reducing currency volatility and setting interest rates
C) insuring companies against interest rate risk and enabling imports and exports
D) converting currency and providing some insurance against foreign exchange risk
D
A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?
A) The United States offers a better deal.
B) The deal is the same in both countries.
C) Britain offers a better deal.
D) A trader can make money by buying the shoes in Britain and selling in the United States at $50.
An exchange rate of €1 = $1.30 indicates that
A) $1 is worth 1.30 euros.
B) one could get 1.30 euros for $1.
C) one euro buys 1.30 dollars.
D) one euro buys 0.77 dollars.
C
The ________ helps consumers compare the relative prices of goods and services in different countries.
A) interest rate
B) GDP growth rate
C) exchange rate
D) tariff rate
International businesses use foreign exchange markets for many reasons. Which of the following is one of these reasons?
A) to receive payments from domestic investors that are in local currencies
B) to pay a foreign company for its products or services in its native country's currency
C) to invest for short terms in money markets when they have spare cash
D) to cover themselves from all risks involved in currency speculation
When a tourist goes to a bank in a foreign country to convert money into 0/1 the local currency, the exchange rate used is the
A) currency swap rate.
B) forward rate.
C) carry trade.
D) spot rate.
Feedback
When a tourist goes to a bank in a foreign country to convert money into the local currency, the exchange rate used is the spot rate for that day.
________ are reported on a real-time basis on many financial websites and 1/1 are continually changing—their value being determined by supply and demand for that currency relative to others.
A) Spot exchange rates
B) Currency swaps
C) Forward exchange rates
D) Future exchange rates
Which of the following is an advantage of using the gold standard?
A) The standard makes sure that goods are not priced out from markets due to
ination.
B) The standard does not require a commitment from a nation to maintain its currency's value.
C) The standard effectively prevents the devaluation of currencies across the world.
D) The standard contains a powerful mechanism for achieving balance-of-trade equilibrium by all countries.
Gold par value refers to the
A) ratio of the price of gold in a currency to the price of gold in U.S. dollars.
B) amount of a currency needed to purchase one ounce of gold.
C) ratio of price of gold in a currency to the price of gold in euros.
D) amount of gold required to equal the reference currency that a nation is using
What was the World Bank's initial mission?
A) implementing a rigid xed exchange rate regime
B) promoting the gold standard across the world
C) providing low-interest loans to help nance the building of Europe's economy
D) implementing a exible xed exchange rate regime
Which of the following arguments is in favor of floating exchange rates?
A) A country's ability to expand or contract its money supply should be limited by
the need to maintain exchange rate parity.
B) Maintaining balance of trade equilibrium is not in the best interest of a country.
C) Countries can isolate themselves from uncertainties when they trade using a mutually agreed on exchange rate.
This form was created inside ISB.
D) Governments can restore monetary control by removing the obligation to maintain exchange rate parity.
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