Question 1

An effective exchange rate is a:

Accepted Answer

A) spot rate 
B) forward rate 
C) flexible exchange rates 
D) weighted average of the exchange rates between the domestic currency and 
A) spot rate 
B) forward rate 
C) flexible exchange rates 
D) weighted average of the exchange rates between the domestic currency and D

Question 2

A capital outflow from New York to Frankfurt under covered interest arbitrage can take place if the interest differential in favor of Frankfurt is:

Accepted Answer

A) smaller than the forward discount on the euro 
B) equal to the forward discount on the euro 
C) larger than the forward discount on the euro 
D) none of the above. 
A) smaller than the forward discount on the euro 
B) equal to the forward discount on the euro 
C) larger than the forward discount on the euro 
D) none of the above. C

Question 3

The exchange rate is kept within narrow limits in different monetary centers by:

Accepted Answer

A) hedging 
B) exchange arbitrage 
C) interest arbitrage 
D) speculation 
A) hedging 
B) exchange arbitrage 
C) interest arbitrage 
D) speculation B

Question 4

Which is not a function of the foreign exchange market?

Accepted Answer

A) to transfer funds from one nation to another 
B) to finance trade 
C) to diversify risks 
D) to provide the facilities for hedging 
A) to transfer funds from one nation to another 
B) to finance trade 
C) to diversify risks 
D) to provide the facilities for hedging

Question 5

An increase in the pound price of the dollar represents:

Accepted Answer

A) an appreciation of the dollar 
B) a depreciation of the dollar 
C) an appreciation of the pound 
D) a devaluation of the dollar 
A) an appreciation of the dollar 
B) a depreciation of the dollar 
C) an appreciation of the pound 
D) a devaluation of the dollar

Question 6

Hedging refers to:

Accepted Answer

A) the acceptance of a foreign exchange risk 
B) the covering of a foreign exchange risk 
C) foreign exchange speculation 
D) foreign exchange arbitrage 
A) the acceptance of a foreign exchange risk 
B) the covering of a foreign exchange risk 
C) foreign exchange speculation 
D) foreign exchange arbitrage

Question 7

Destabilizing speculation refers to the:

Accepted Answer

A) sale of the foreign currency when the exchange rate falls or is low 
B) purchase of the foreign currency when the exchange rate falls or is low 
C) sale of the foreign currency when the exchange rate rises or is high 
D) all of the above 
A) sale of the foreign currency when the exchange rate falls or is low 
B) purchase of the foreign currency when the exchange rate falls or is low 
C) sale of the foreign currency when the exchange rate rises or is high 
D) all of the above

Question 8

A shortage of pounds under a flexible exchange rate system results in:

Accepted Answer

A) a depreciation of the pound 
B) a depreciation of the dollar 
C) an appreciation of the dollar 
D) no change in the exchange rate 
A) a depreciation of the pound 
B) a depreciation of the dollar 
C) an appreciation of the dollar 
D) no change in the exchange rate

Question 9

A U.S.importer scheduled to make a payment of €100,000 in three months can hedge his foreign exchange risk by:

Accepted Answer

A) purchasing $100,000 in the forward market for delivery in three months 
B) selling €100,000 in the spot market for delivery in three months 
C) purchasing €100,000 in the forward market for delivery in three months 
D) selling €100,000 in the spot market for delivery in three months 
A) purchasing $100,000 in the forward market for delivery in three months 
B) selling €100,000 in the spot market for delivery in three months 
C) purchasing €100,000 in the forward market for delivery in three months 
D) selling €100,000 in the spot market for delivery in three months

Question 10

The currency of the nation with the lower interest rate is usually at a

Accepted Answer

A) forward premium 
B) forward discount 
C) covered interest arbitrage parity 
D) any of the above 
A) forward premium 
B) forward discount 
C) covered interest arbitrage parity 
D) any of the above

Question 11

A change from $1=€1 to $2=€1 represents

Accepted Answer

A) depreciation of the dollar 
B) an appreciation of the dollar 
C) a depreciation of the pound 
D) none of the above 
A) depreciation of the dollar 
B) an appreciation of the dollar 
C) a depreciation of the pound 
D) none of the above

Question 12

According to the theory of covered interest arbitrage,if the interest differential in favor of the foreign country exceeds the forward discount on the foreign currency,there will be a:

Accepted Answer

A) capital inflow under covered interest arbitrage 
B) capital outflow under covered interest arbitrage 
C) no capital flow under a covered interest arbitrage 
D) any of the above 
A) capital inflow under covered interest arbitrage 
B) capital outflow under covered interest arbitrage 
C) no capital flow under a covered interest arbitrage 
D) any of the above

Question 13

If SR=$1/€1 and the three-month FR=$0.99/€1:

Accepted Answer

A) the euro is at a three-month forward discount of 1% 
B) the euro is at a forward discount of 1% per year 
C) the euro is at a three-month forward premium of 1% 
D) the dollar is at a three-month forward discount of 1% 
A) the euro is at a three-month forward discount of 1% 
B) the euro is at a forward discount of 1% per year 
C) the euro is at a three-month forward premium of 1% 
D) the dollar is at a three-month forward discount of 1%

Question 14

If the three-month FR=$1/€1 and a speculator anticipates that SR=$1.02/€1 in three months,he can earn a profit by:

Accepted Answer

A) selling euros forward 
B) purchasing euros forward 
C) selling dollars forward 
D) purchasing dollars forward 
A) selling euros forward 
B) purchasing euros forward 
C) selling dollars forward 
D) purchasing dollars forward

Question 15

When the interest differential in favor of the foreign country is equal to the forward premium on the foreign currency,we:

Accepted Answer

A) are at covered interest arbitrage parity 
B) are not at covered interest arbitrage parity 
C) may or may not be at covered interest arbitrage parity 
D) we cannot say without additional information 
A) are at covered interest arbitrage parity 
B) are not at covered interest arbitrage parity 
C) may or may not be at covered interest arbitrage parity 
D) we cannot say without additional information

An effective exchange rate is a:

A capital outflow from New York to Frankfurt under covered interest arbitrage can take place if the interest differential in favor of Frankfurt is:

The exchange rate is kept within narrow limits in different monetary centers by:

Which is not a function of the foreign exchange market?

An increase in the pound price of the dollar represents:

Hedging refers to:

Destabilizing speculation refers to the:

A shortage of pounds under a flexible exchange rate system results in:

A U.S.importer scheduled to make a payment of €100,000 in three months can hedge his foreign exchange risk by:

The currency of the nation with the lower interest rate is usually at a

A change from $1=€1 to $2=€1 represents

According to the theory of covered interest arbitrage,if the interest differential in favor of the foreign country exceeds the forward discount on the foreign currency,there will be a:

If SR=$1/€1 and the three-month FR=$0.99/€1:

If the three-month FR=$1/€1 and a speculator anticipates that SR=$1.02/€1 in three months,he can earn a profit by:

When the interest differential in favor of the foreign country is equal to the forward premium on the foreign currency,we:

Introduction

The Law of Comparative Advantage

The Standard Theory of International Trade

Demand and Supply, Offer Curves, and the Terms of Trade

Factor Endowments and the Heckscherohlin Theory

Economies of Scale, Imperfect Competition, and International Trade

Economic Growth and International Trade

Trade Restrictions: Tariffs

Nontariff Trade Barriers and the New Protectionism

Economic Integration: Customs Unions and Free Trade Areas

International Trade and Economic Development

International Resource Movements and Multinational Corporations

Balance of Payments

Exchange Rate Determination

The Price Adjustment Mechanism With Flexible and Fixed Exchange Rates

The Income Adjustment Mechanism and Synthesis of Automatic Adjustments

Open-Economy Macroeconomics: Adjustment Policies

Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply

Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

The International Monetary System: Past, Present, and Future

Filters

Exam 14: Foreign Exchange Markets and Exchange Rates

An effective exchange rate is a:

A capital outflow from New York to Frankfurt under covered interest arbitrage can take place if the interest differential in favor of Frankfurt is:

The exchange rate is kept within narrow limits in different monetary centers by:

Which is not a function of the foreign exchange market?

An increase in the pound price of the dollar represents:

Hedging refers to:

Destabilizing speculation refers to the:

A shortage of pounds under a flexible exchange rate system results in:

A U.S.importer scheduled to make a payment of €100,000 in three months can hedge his foreign exchange risk by:

The currency of the nation with the lower interest rate is usually at a

A change from $1=€1 to $2=€1 represents

According to the theory of covered interest arbitrage,if the interest differential in favor of the foreign country exceeds the forward discount on the foreign currency,there will be a:

If SR=$1/€1 and the three-month FR=$0.99/€1:

If the three-month FR=$1/€1 and a speculator anticipates that SR=$1.02/€1 in three months,he can earn a profit by:

When the interest differential in favor of the foreign country is equal to the forward premium on the foreign currency,we:

Introduction

The Law of Comparative Advantage

The Standard Theory of International Trade

Demand and Supply, Offer Curves, and the Terms of Trade

Factor Endowments and the Heckscherohlin Theory

Economies of Scale, Imperfect Competition, and International Trade

Economic Growth and International Trade

Trade Restrictions: Tariffs

Nontariff Trade Barriers and the New Protectionism

Economic Integration: Customs Unions and Free Trade Areas

International Trade and Economic Development

International Resource Movements and Multinational Corporations

Balance of Payments

Exchange Rate Determination

The Price Adjustment Mechanism With Flexible and Fixed Exchange Rates

The Income Adjustment Mechanism and Synthesis of Automatic Adjustments

Open-Economy Macroeconomics: Adjustment Policies

Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply

Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination

The International Monetary System: Past, Present, and Future

Filters