INTERNATIONAL FINANCE
Assignment Problems (3) Name: Student#:
I. Choose the correct answer for the following questions (only ONE correct answer) (2 credits for each question, total credits 2 x 25 = 50)
1. Interbank quotations that include the United States dollars are conventionally given in __________, which state the foreign currency price of one U.S. dollar, such as a bid price of SFr 0.85/$. A. indirect quote B. direct quote C. American quote D. European quote
2. The spot exchange rate published in financial newspapers is usually the __________.
A. nominal exchange rate B. real exchange rate C. effective exchange rate D. equilibrium exchange rate
3. The foreign exchange refers to the __________. A. foreign bank notes and coins B. demand deposits in foreign banks
C. foreign securities that can be easily cashed D. all of the above
4. The functions of the foreign exchange market come down to __________. A. converting the currency of one country into the currency of another B. providing some insurance against the foreign exchange risk C. making the foreign exchange speculation easy D. Only A and B are true.
5. Which of the following is NOT true regarding the foreign exchange market? A. It is the place through which people exchange one currency for another. B. The exchange rate nowadays is mainly determined by the market forces. C. Most foreign exchange transactions are physically completed in this market. D. All of the above are true.
6. The world largest foreign exchange markets are __________ respectively. A. London, New York and Tokyo B. London, Paris and Frankfurt
C. London, Hong Kong and Singapore D. London, Zurich and Bahrain
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7. The foreign exchange market is NOT efficient because __________.
A. monetary authorities dominate the foreign exchange market and everybody knows that by definition, central banks are inefficient
B. commercial banks and other participants of the market do not compete with one another due to the fact that transaction takes place around the world and not in a single centralized location
C. foreign exchange dealers have different prices such as bid and ask prices
D. None of the reasons listed are correct because the foreign exchange market is an efficient market
8. __________ earn a profit by a bid-ask spread on currencies they buy and sell. __________ on the other hand, earn a profit by bringing together buyers and sellers of foreign exchanges and earning a commission on each sale and purchase. A. Foreign exchange brokers; foreign exchange dealers B. Foreign exchange dealers; foreign exchange brokers C. arbitragers; speculators
D. commercial banks; central banks
9. Most foreign exchange transactions are through the U.S. dollars. If the transaction is expressed as the currencies per dollar, this is known as __________ whereas __________ are expressed as dollars per currency. A. direct quote; indirect quote B. indirect quote; direct quote
C. European quote; American quote D. American quote, European quote
10. From the viewpoint of a Japanese investor, which of the following would be a direct quote? A. SFr 1.25/