Question 1

A depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is:

Accepted Answer

A)  Constant 
B)  Inelastic 
C)  Elastic 
D)  Unitary elastic 
A)  Constant 
B)  Inelastic 
C)  Elastic 
D)  Unitary elastic

Question 2

A (An) ____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future:

Accepted Answer

A)  Arbitrage 
B)  Swap 
C)  Option 
D)  Hedge 
A)  Arbitrage 
B)  Swap 
C)  Option 
D)  Hedge

Question 3

If the Swiss demand for dollars is elastic, an appreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Accepted Answer

A) True 
 B)False

Question 4

Figure 11.1 illustrates the supply and demand schedules for the Swiss franc. Assume that exchange rates are flexible.
Figure 11.1. Supply and Demand Schedules of Francs
  
-Refer to Figure 11.1. Suppose the exchange rate is $.70 per franc. Free-market forces would lead to a (an) ____ of the dollar against the franc and a (an) ____ in U.S. international competitiveness.

Accepted Answer

A)  Depreciation, improvement 
B)  Depreciation, worsening 
C)  Appreciation, improvement 
D)  Appreciation, worsening 
A)  Depreciation, improvement 
B)  Depreciation, worsening 
C)  Appreciation, improvement 
D)  Appreciation, worsening

Question 5

Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate between the franc and the dollar is:

Accepted Answer

A)  2 francs per dollar 
B)  1 franc per dollar 
C)  $2 per franc 
D)  $3 per franc 
A)  2 francs per dollar 
B)  1 franc per dollar 
C)  $2 per franc 
D)  $3 per franc

Question 6

As the dollar depreciates against the peso, U.S. residents tend to import more Mexican goods and thus demand more pesos.

Accepted Answer

A) True 
 B)False

Question 7

Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price, within a few days to a couple of years?

Accepted Answer

A)  Letter of credit 
B)  Foreign currency option 
C)  Cable transfer 
D)  Bill of exchange 
A)  Letter of credit 
B)  Foreign currency option 
C)  Cable transfer 
D)  Bill of exchange

Question 8

Which method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future?

Accepted Answer

A)  Forward transaction 
B)  Futures transaction 
C)  Spot transaction 
D)  Swap transaction 
A)  Forward transaction 
B)  Futures transaction 
C)  Spot transaction 
D)  Swap transaction

Question 9

Currency arbitrage tends to result in identical yen/dollar exchange rates in New York and in Tokyo.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following tends to cause the U.S. dollar to appreciate in value?

Accepted Answer

A)  An increase in U.S. prices above foreign prices 
B)  Rapid economic growth in foreign countries 
C)  A fall in U.S. interest rates below foreign levels 
D)  An increase in the level of U.S. income 
A)  An increase in U.S. prices above foreign prices 
B)  Rapid economic growth in foreign countries 
C)  A fall in U.S. interest rates below foreign levels 
D)  An increase in the level of U.S. income

Question 11

Figure 11.1 illustrates the supply and demand schedules for the Swiss franc. Assume that exchange rates are flexible.
Figure 11.1. Supply and Demand Schedules of Francs
  
-Refer to Figure 11.1. Suppose the exchange rate is $.30 per franc. Free-market forces would lead to a (an) ____ of the dollar against the franc and a (an) ____ in U.S. international competitiveness:

Accepted Answer

A)  Depreciation, improvement 
B)  Depreciation, worsening 
C)  Appreciation, improvement 
D)  Appreciation, worsening 
A)  Depreciation, improvement 
B)  Depreciation, worsening 
C)  Appreciation, improvement 
D)  Appreciation, worsening

Question 12

An appreciation in the value of the U.S. dollar against the British pound would tend to:

Accepted Answer

A)  Discourage the British from buying American goods 
B)  Discourage Americans from buying British goods 
C)  Increase the number of dollars that could be bought with a pound 
D)  Discourage U.S. tourists from traveling to Britain 
A)  Discourage the British from buying American goods 
B)  Discourage Americans from buying British goods 
C)  Increase the number of dollars that could be bought with a pound 
D)  Discourage U.S. tourists from traveling to Britain

Question 13

Concerning the covering of exchange market risks--assuming that a depreciation of the domestic currency is anticipated, one can say that there is an incentive for:

Accepted Answer

A)  Exporters to rush to cover their future needs 
B)  Importers to rush to cover their future needs 
C)  Both exporters and importers to rush to cover their future needs 
D)  Neither exporters nor importers to rush to cover their future needs 
A)  Exporters to rush to cover their future needs 
B)  Importers to rush to cover their future needs 
C)  Both exporters and importers to rush to cover their future needs 
D)  Neither exporters nor importers to rush to cover their future needs

Question 14

If the Swiss demand for dollars is inelastic, a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Accepted Answer

A) True 
 B)False

Question 15

Table 11.4. Forward Exchange Rates
 $\begin{array} { l c c } 
\hline & \text { U.S. Dallar Equivalent } \
& \text { Wedinesday } & \text { Tuesday } \
\text { Switzerland (Franc) } &.6598 & .6590\
30 - \text { day Farward } &  .6592 & .6585\
\text { 90-day Farward } & .6585 & .6578 \
180 - \text { tay Farward } & .6577 & .6572 \
\hline
\end{array}$
-Refer to Table 11.4. On Wednesday, the 30-day forward franc was selling at a:

Accepted Answer

A)  1 percent premium per annum against the dollar 
B)  2 percent premium per annum against the dollar 
C)  1 percent discount per annum against the dollar 
D)  2 percent discount per annum against the dollar 
A)  1 percent premium per annum against the dollar 
B)  2 percent premium per annum against the dollar 
C)  1 percent discount per annum against the dollar 
D)  2 percent discount per annum against the dollar

Question 16

Table 11.1 gives the exchange rate quotations for the U.S. dollar and the British pound.
Table 11.1. Foreign Exchange Quotations
 $\begin{array}{lllll}
&\text {U.S. Dollar}&&\text {Currency Per}\
&\text {Equivalent}&&\text {U.S. Dollar}\
\
\
&\underline { \text { Tuesday}}&\underline { \text { Monday}}&\underline { \text { Tuesday}}&\underline { \text {Monday}}\
\text { Britain (Pound) } & 1.4270 & 1.4390 & .7008 & .6949 \
\text { 30-day Forward } & 1.4211 & 1.4333 & .7037 & .6977 \
\text { 60-day Forward } & 1.4090 & 1.4220 & .7097 & .7032 \
\text { 180-day Forward } & 1.3930 & 1.4070 & .7179 & .7107
\end{array}$
-Consider Table 11.1. Concerning the Tuesday quotations: compared to the cost of buying 100 pounds on the spot market, if 100 pounds were bought for future delivery in 180 days the dollar cost of the pounds would be:

Accepted Answer

A)  $3.40 higher 
B)  $3.40 lower 
C)  $6.80 higher 
D)  $6.80 lower 
A)  $3.40 higher 
B)  $3.40 lower 
C)  $6.80 higher 
D)  $6.80 lower

Question 17

The bid rate refers to the price at which a bank is willing to sell a unit of foreign currency; the offer rate is the price at which a bank is willing to buy a unit of foreign currency.

Accepted Answer

A) True 
 B)False

Question 18

Most foreign exchange trading occurs between banks and:

Accepted Answer

A)  National governments 
B)  Other banks 
C)  Corporations 
D)  Household investors 
A)  National governments 
B)  Other banks 
C)  Corporations 
D)  Household investors

Question 19

Assume that Boeing anticipates receiving 20 million yen in 3 months from exports of jumbo jets to a Japanese airline. The firm could hedge against the risk of a depreciation of the dollar against the yen by contracting to sell its expected yen proceeds for dollars in the forward market at today's forward rate.

Accepted Answer

A) True 
 B)False

Question 20

Figure 11.1 illustrates the supply and demand schedules for the Swiss franc. Assume that exchange rates are flexible.
Figure 11.1. Supply and Demand Schedules of Francs
  
-Refer to Figure 11.1. Suppose the exchange rate is $.70 per franc. At this exchange rate there is an ____ of francs which leads to a ____ in the dollar price of the franc, a (an) ____ in the quantity of francs supplied, and a (an) ____ in the quantity of francs demanded.

Accepted Answer

A)  Excess demand, rise, increase, decrease 
B)  Excess demand, rise, decrease, increase 
C)  Excess supply, fall, decrease, increase 
D)  Excess supply, fall, increase, decrease 
A)  Excess demand, rise, increase, decrease 
B)  Excess demand, rise, decrease, increase 
C)  Excess supply, fall, decrease, increase 
D)  Excess supply, fall, increase, decrease

A depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is:

A (An) ____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future:

If the Swiss demand for dollars is elastic, an appreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate between the franc and the dollar is:

As the dollar depreciates against the peso, U.S. residents tend to import more Mexican goods and thus demand more pesos.

Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price, within a few days to a couple of years?

Which method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future?

Currency arbitrage tends to result in identical yen/dollar exchange rates in New York and in Tokyo.

Which of the following tends to cause the U.S. dollar to appreciate in value?

An appreciation in the value of the U.S. dollar against the British pound would tend to:

Concerning the covering of exchange market risks--assuming that a depreciation of the domestic currency is anticipated, one can say that there is an incentive for:

If the Swiss demand for dollars is inelastic, a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Table 11.4. Forward Exchange Rates U.S. Dallar Equivalent Wedinesday Tuesday Switzerland (Franc) .6598 .6590 30- day Farward .6592 .6585 90-day Farward .6585 .6578 180- tay Farward .6577 .6572 -Refer to Table 11.4. On Wednesday, the 30-day forward franc was selling at a:

The bid rate refers to the price at which a bank is willing to sell a unit of foreign currency; the offer rate is the price at which a bank is willing to buy a unit of foreign currency.

Most foreign exchange trading occurs between banks and:

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

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Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

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Exam 11: Foreign Exchange

A depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is:

A (An) ____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future:

If the Swiss demand for dollars is elastic, an appreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate between the franc and the dollar is:

As the dollar depreciates against the peso, U.S. residents tend to import more Mexican goods and thus demand more pesos.

Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price, within a few days to a couple of years?

Which method of trading currencies involves the conversion of one currency into another at one point in time with an agreement to reconvert it back to the original currency at some point in the future?

Currency arbitrage tends to result in identical yen/dollar exchange rates in New York and in Tokyo.

Which of the following tends to cause the U.S. dollar to appreciate in value?

An appreciation in the value of the U.S. dollar against the British pound would tend to:

Concerning the covering of exchange market risks--assuming that a depreciation of the domestic currency is anticipated, one can say that there is an incentive for:

If the Swiss demand for dollars is inelastic, a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Table 11.4. Forward Exchange Rates U.S. Dallar Equivalent Wedinesday Tuesday Switzerland (Franc) .6598 .6590 30- day Farward .6592 .6585 90-day Farward .6585 .6578 180- tay Farward .6577 .6572 -Refer to Table 11.4. On Wednesday, the 30-day forward franc was selling at a:

The bid rate refers to the price at which a bank is willing to sell a unit of foreign currency; the offer rate is the price at which a bank is willing to buy a unit of foreign currency.

Most foreign exchange trading occurs between banks and:

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

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