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Multiple Choice Quiz
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1.
The rate at which a foreign currency dealer converts one currency into another currency on a particular day is referred to as currency speculation.
A)True
B)False
2.
The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates is a currency swap.
A)True
B)False
3.
Exchange rates are determined by the demand and supply of one currency relative to the demand and supply of another.
A)True
B)False
4.
PPP theory predicts that changes in relative prices will result in a change in exchange rates.
A)True
B)False
5.
PPP has proven to be a strong and accurate predictor of exchange rates.
A)True
B)False
6.
The ________ is the rate at which one currency is converted in another.
A)exchange rate
B)currency market
C)foreign exchange market
D)currency swap rate
7.
International businesses use the foreign exchange markets for all of the following reasons except
A)to buy and sell goods in a foreign market
B)to pay a foreign company for its products or services in the country's currency
C)to capitalize on high interest rates offered in foreign markets when making short term investments of spare cash
D)to exchange payments it receives in foreign currencies
8.
If a tourist buys local currency, the exchange rate used will be the
A)tourist rate
B)spot rate
C)real rate
D)forward rate
9.
If a company expects the ________ relative to the ¥, the company might invest€10 million and receive ¥1.2 billion. (Assume an exchange rate of $1= €120).
A)euro to appreciate
B)euro to depreciate
C)euro to be undervalued
D)yen to be overvalued
10.
Typically exchange rates are quoted at all of the following time frames in the future except
A)30 days
B)60 days
C)90 days
D)180 days
11.
When foreign exchange dealers expect the dollar to appreciate against another currency, the dollar
A)the dollar is selling at a discount
B)the dollar is selling at a premium
C)the dealers expect the dollar to depreciate relative to the foreign currency
D)the dollar will buy les foreign exchange
12.
In 2004, forward instruments accounted for _____ percent of all foreign exchange transactions.
A)25
B)40
C)65
D)80
13.
When two parties agree to exchange currency and execute the deal at some specific date in the future a ___ occurs.
A)spot transaction
B)currency swap
C)forward exchange
D)currency speculation
14.
A company that simultaneously buys and sells a given amount of foreign exchange for two different value dates is engaged in
A)a multilateral transaction
B)a forward transaction
C)a future transaction
D)a currency swap
15.
By 2004, the average total value of global foreign exchange trading was about ________ per day.
A)$200 billion
B)$1,200 billion
C)$1.88 trillion
D)$5 trillion
16.
Demand for a currency relative to others
A)causes the currency to depreciate
B)causes the currency to appreciate
C)causes the currency to go down in value
D)creates a volatile currency situation
17.
Which of the following is not an important vehicle currency?
A)the Japanese yen
B)the Swiss franc
C)the British pound
D)the euro
18.
In 2004, ______ percent of all foreign exchange transactions involved dollars on one side of the transaction.
A)15
B)37
C)63
D)89
19.
If Japan is experiencing rampant price inflation, and Germany is experiencing a low inflation rate
A)the yen would be expected to depreciate relative to the euro
B)the yen would be expected to appreciate relative to the euro
C)PPP would suggest that Japan would see prices fall
D)PPP would suggest that Japan would see prices rise
20.
PPP theory predicts that exchange rates are determined by
A)inflation rates
B)relative prices
C)supply and demand
D)government
21.
The formula i = r + I is known as
A)PPP
B)the Efficient Market Theory
C)the Inefficient Market Theory
D)the Fisher Effect
22.
The _______ school of thought does not believe that forward exchange rates are the best possible predictors of future spot rates.
A)efficient market
B)inefficient market
C)Fisher effect
D)International Fisher effect
23.
A country's currency is said to be ______ when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.
A)externally convertible
B)freely convertible
C)internally convertible
D)nonconvertible
24.
When neither residents nor nonresidents are allowed to convert a currency into a foreign currency, the currency is said to be
A)internally convertible
B)externally convertible
C)freely convertible
D)nonconvertible
25.
The extent to which the income from individual transactions is affected by fluctuations in the foreign exchange values is known as
A)translation exposure
B)economic exposure
C)transaction exposure
D)geographic exposure





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