Exam 8: Foreign Exchange and International Financial Markets

Why is the foreign exchange market moving online?

Suppose £1 is trading for $2.00 in New York City and $1.80 in London. A foreign exchange trader could take $1.80 and buy £1 in London's financial exchange market and then sell it for $2.00 in New York's financial exchange market. What is this an example of?

The forward price of a foreign currency is typically the same as its spot price.

When an overseas banking operation is separately incorporated from the parent bank, what is it called?

If a currency is selling at a forward premium it most likely means that the foreign-exchange market believes that the ________.

What most likely happens when the price of yen falls?

The equilibrium point between the quantity of a currency supplied and the quantity of the currency demanded is the exchange rate.

The short-term interest rate differential between two countries is a good indicator of of the forward premium on the currencies, but not the forward discount.

The ________ is the primary third currency used in calculating cross rates.

________ attempt to exploit small differences in the price of a currency between markets by buying currencies in lower-priced markets and selling in higher-priced markets.

Why are the interest rates often low on international bonds?

What is the international Fisher effect? Explain how it relates to the foreign-exchange market?

When the direct quote and the cross quote for each possible pair of currencies are equal, there is no opportunity for three-point arbitrage.

A(n) ________ is the price of the home currency in terms of the foreign currency.

Why would an MNC most likely use an offshore financial center?

Which of the following is not a type of client of foreign-exchange departments of banks?

Which of the following is not considered a hard currency?

________ assume exchange rate risks by acquiring positions in a currency and hoping that they can correctly predict changes in the currency's market value.

MNCs can cross-list their common stocks on multiple stock exchanges.

________ is the riskless purchase of a product in one market for immediate resale in a second market in order to profit from a price discrepancy.