20) Compute how many British pounds would it cost to buy a pair of American designer jeans costing $45?
Answer:
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21) Find the exchange rate between the dollar and the British pounds for the following cases:
Answer:
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13.2 The Foreign Exchange Market
1) The largest trading of foreign exchange occurs in
A) New York.
B) London.
C) Tokyo.
D) Frankfurt.
E) Singapore.
Answer: B
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2) Which of the following type of funds cater to wealthy individuals, are not bound by government regulations,
and are actively traded in foreign exchange markets? A) Pension funds
B) Mutual funds
C) Hedge funds
D) Exchange funds
Answer: C
Question Status: New
3) The future date on which the currencies are actually exchanged is called what?
A) the value date
B) the spot exchange date
C) the two -day window D) the commitment date
E) None of the above.
Answer: A
Question Status: Previous Edition
4) In 2004
A) 20 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
B) 10 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
C) 30 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
D) 40 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
E) 90 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
Answer: E
Question Status: Previous Edition
5) Which one of the following statements is the most accurate?
A) Spot exchange rates are always higher than forward exchange rates.
B) Spot exchange rates are always lower than forward exchange rates.
C) Spot exchange rates and forward exchanges rates are always equal.
D) Spot exchange rates and forward exchanges rates are equal when the value date and the date of the
spot transaction are the same. E) None of the above.
Answer: D
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6) Forward and spot exchange rates
A) are necessarily equal.
B) do not move closely together.
C) are always such that the forward exchange rate is higher.
D) do move closely together, but are not necessarily equal.
E) None of the above.
Answer: D
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7) A foreign exchange swap
A) is a spot sale of a currency.
B) is a forward repurchase of the currency.
C) is a spot sale of a currency combined with a forward repurchase of the currency.
D) is a spot sale of a currency combined with a forward sale of the currency.
E) None of the above.
Answer: C
Question Status: Previous Edition
8) Nondeliverable forward exchange markets in centers such as Hong Kong and Singapore help to circumvent
which problem?
A) loss of goods shipped from Hong Kong and Singapore
B) inconvertible currencies cannot be traded in foreign markets.
C) lag between the spot exchange date and the value date
D) high travel costs from Asia to 'traditional' foreign exchange markets
E) None of the above.
Answer: B
Question Status: Previous Edition
9) The following is an example of Radio Shack hedging its foreign currency risk:
A) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward -exchange deal to buy yen.
B) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward -exchange deal to sell yen.
C) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack buys yen at a spot -exchange 1 month from now.
D) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen at a spot -exchange 1 month from now. E) None of the above.
Answer: A
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10) Which of the following is NOT an example of a financial derivative?
A) forwards
B) bonds
C) swaps
D) futures
E) options
Answer: B
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11) Which major actor is at the center of the foreign exchange market?
A) corporations
B) central banks
C) commercial banks D) non -bank financial institutions E) None of the above.
Answer: C
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12) Which of the following is NOT a major actor in the foreign exchange market?
A) corporations
B) central banks
C) commercial banks D) non -bank financial institutions E) tourists
Answer: E
Question Status: Previous Edition
13) By April 2004,
A) only about 10 percent of foreign exchange trades were against euros.
B) only about 24 percent of foreign exchange trades were against euros.
C) only about 37 percent of foreign exchange trades were against euros.
D) only about 42 percent of foreign exchange trades were against euros.
E) only about 60 percent of foreign exchange trades were against euros.
Answer: C
Question Status: Previous Edition
14) Which of the following statements is true about a vehicle currency?
A) It is widely used to denominate contracts made by parties who reside in the country that issues the
vehicle currency.
B) The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange
deals.
C) There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar.
D) The pound sterling, once second only to the dollar as a key international currency, is beginning to rise
in importance. E) Only A and C.
Answer: B
Question Status: Previous Edition
15) The action of arbitrage is
A) the process of buying a currency cheap and selling it dear.
B) the process of buying a currency dear and selling it cheap.
C) the process of buying and selling currency at the same price.
D) the process of selling currency at different prices in different markets.
E) None of the above.
Answer: A
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16) Futures contracts differ from forward contracts in that
A) future contracts ensures you will receive a certain amount of foreign currency at a specified future date.
B) future contracts bind you into your end of the deal.
C) future contracts allow you to sell your contract to an organized futures exchange.
D) future contracts are a disadvantage if your views about the future spot exchange rate are to change.
E) futures contracts don't allow you to realize a profit of a loss right away.
Answer: C
Question Status: Previous Edition
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