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| 1 | |
When a market participant buys foreign currency, we say that the participant is taking a/an________ position. |
| | A) | net |
| | B) | short |
| | C) | equity |
| | D) | long |
| | E) | risk-free |
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| 2 | |
By the mid-2000s, about _____________ of interbank trading in major currencies was accomplished by electronic brokerage. |
| | A) | 5% or less |
| | B) | 10 to 20% |
| | C) | half |
| | D) | 60 to 70% |
| | E) | 85 to 95% |
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| 3 | |
The currency of China is known as the: |
| | A) | yen |
| | B) | yuan |
| | C) | rupee |
| | D) | lira |
| | E) | won |
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| 4 | |
If a financial institution is "net short" in a foreign currency, then we can say it has: |
| | A) | a negative net exposure to the currency |
| | B) | no holdings of the currency |
| | C) | a positive net exposure to the currency |
| | D) | a hedged position |
| | E) | earned profits on its holdings of the currency |
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| 5 | |
If the Euro will buy fewer U.S. dollars, then we would say: |
| | A) | the Euro has appreciated, relative to the dollar |
| | B) | the Euro has depreciated, relative to the dollar |
| | C) | the dollar appreciated, relative to the Euro |
| | D) | a and c |
| | E) | b and c |
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| 6 | |
If U.S investors purchased fewer foreign assets relative to foreign investor purchases of U.S. assets, then there is: |
| | A) | a negative balance in the capital accounts of the U.S. balance of payments. |
| | B) | a positive balance in the capital accounts of the U.S. balance of payments. |
| | C) | purchasing power parity equilibrium |
| | D) | the dollar must have appreciated against foreign currencies |
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| 7 | |
The "balance of payments accounts": |
| | A) | shows the stockholders' equity of a corporation. |
| | B) | shows how much of a nation's currency has been "shorted" |
| | C) | shows the net income of a corporation. |
| | D) | summarizes transactions between one nation and other nations |
| | E) | summarizes all forward foreign exchange transactions at a particular time |
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| 8 | |
According to the interest rate parity theorem, one who hedges in the foreign exchange market: |
| | A) | will realize the same return, whether investing domestically or across international borders. |
| | B) | will always lock in a positive rate of return. |
| | C) | must "go long" in the currencies of other nations in order to achieve a hedge. |
| | D) | will always earn less than if no hedge had been used. |
| | E) | b and d |
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| 9 | |
The price at which one country's currency can be traded for another's is the: |
| | A) | currency appreciation |
| | B) | balance of payments |
| | C) | purchasing power parity |
| | D) | foreign exchange rate |
| | E) | short position rate |
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| 10 | |
Today, Marie promises to buy Japanese yen, for U.S. dollars. The exchange will take place in two months, but the rate of exchange is set today. Which of the following is true? |
| | A) | The yen will surely depreciate against the U.S. dollar, over the next two months. |
| | B) | The U.S. dollar will surely depreciate against the yen, over the next two months. |
| | C) | Marie has entered into a forward transaction. |
| | D) | Marie has entered into a spot transaction |
| | E) | Marie has eliminated all foreign exchange risk |
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| 11 | |
"Purchasing Power Parity" implies that foreign currency exchange rates will: |
| | A) | change only if governments intervene to alter the rates of exchange |
| | B) | never change |
| | C) | change only in response to speculative trading |
| | D) | change in response to changes in relative inflation rates among countries |
| | E) | never change if market participants are engaged in hedging operations |
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| 12 | |
If one U.S. dollar is worth 1.3 Canadian dollars, how much is one Canadian dollar, in U.S. dollars? |
| | A) | 1 U.S. dollar |
| | B) | 1.3 U.S. dollars |
| | C) | 0.700 U.S. dollars |
| | D) | 1.67 U.S. dollars |
| | E) | .77 U.S. dollars |
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| 13 | |
If a U.S. bank buys Japanese yen with U.S. dollars, hoping to profit from an anticipated increase in the yen's value, the U.S. Bank is: |
| | A) | taking a short position in Japanese yen |
| | B) | speculating |
| | C) | hedging |
| | D) | hoping that the U.S. dollar will rise in value relative to yen. |
| | E) | hoping that yen's value will not change. |
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| 14 | |
_________________ in 1999, when exchange rates were fixed among the eleven original countries in the European Union. |
| | A) | A European non-aggression pact was signed |
| | B) | A new currency, the "euro" was created |
| | C) | A new European nation was created |
| | D) | The Bretton Woods Agreement was signed |
| | E) | Exchange rates for all non-European nations were required to "float" |
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| 15 | |
When two parties strike a deal to trade foreign currencies, with immediate delivery of the currencies, we call this a/an _______________ transaction. |
| | A) | forward market |
| | B) | futures market |
| | C) | spot market |
| | D) | commodity |
| | E) | (a) or (b) |
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| 16 | |
A "depreciating" U.S. dollar would tend to make: |
| | A) | products of U.S. companies cheaper in foreign markets. |
| | B) | products of U.S. companies more expensive in foreign markets. |
| | C) | products from non-U.S. countries cheaper in the U.S. |
| | D) | product quality of U.S. companies go down. |
| | E) | (b) and (c) |
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| 17 | |
If the U.S. imports more goods and services relative to the export of domestic goods and services, we would say that the U.S. has a/an: |
| | A) | current account surplus |
| | B) | current account deficit |
| | C) | hedged position in international trade |
| | D) | capital account deficit |
| | E) | recessionary trade policy |
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| 18 | |
Julie has some excess funds to invest for one month. She can choose a U.S. time deposit (in U.S. dollars) or a Canadian time deposit (in Canadian dollars). Assume that both deposits have one-month maturity and both have no default risk. The Canadian time deposit has a current interest rate of 0.20% per month. The spot exchange rate is 1.2280 U.S. dollar/Canadian dollar. The 1-month forward exchange rate is 1.2300 U.S. dollar/Canadian dollar. Assuming domestic and foreign markets are in equilibrium, the "interest rate parity theorem" indicates that the one-month U.S. time deposit rate should be: |
| | A) | 0.302% per month |
| | B) | 0.163% per month |
| | C) | 0.363% per month |
| | D) | 0.246% per month |
| | E) | 0.200% per month |
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| 19 | |
Suppose the current U.S.-Japan exchange rate is 0.0092 U.S. dollar/yen. Now, suppose that U.S. goods and services rise in price by 5%, while Japanese goods and services show a price increase of 2%. According to purchasing power parity, what will be the resulting change in the U.S. dollar/yen exchange rate? |
| | A) | Increase by 0.000276 |
| | B) | Decrease by 0.000276 |
| | C) | Increase by .03 |
| | D) | Decrease by .03 |
| | E) | Increase by .0006 |
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