Question 1

The purchasing power parity (PPP) theory argues that the exchange rate will

Accepted Answer

A)  increase if a country is experiencing inflation. 
B)  change even if relative prices remain unchanged. 
C)  increase if a country is experiencing deflation. 
D)  change if relative prices change. 
A)  increase if a country is experiencing inflation. 
B)  change even if relative prices remain unchanged. 
C)  increase if a country is experiencing deflation. 
D)  change if relative prices change.

Question 2

The ________ helps consumers compare the relative prices of goods and services in different countries.

Accepted Answer

A)  interest rate 
B)  GDP growth rate 
C)  exchange rate 
D)  tariff rate 
A)  interest rate 
B)  GDP growth rate 
C)  exchange rate 
D)  tariff rate

Question 3

A lag strategy involves

Accepted Answer

A)  attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. 
B)  delaying collection of foreign currency receivables if that currency is expected to appreciate. 
C)  paying foreign currency payables before they are due when a currency is expected to appreciate. 
D)  delaying collection of foreign currency receivables if that currency is expected to depreciate. 
A)  attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. 
B)  delaying collection of foreign currency receivables if that currency is expected to appreciate. 
C)  paying foreign currency payables before they are due when a currency is expected to appreciate. 
D)  delaying collection of foreign currency receivables if that currency is expected to depreciate.

Question 4

With the help of an example, explain how a tourist participates in the foreign exchange market.

Accepted Answer

The foreign exchange market is a market

Question 5

The ________ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

Accepted Answer

A)  spot exchange rate 
B)  forward exchange rate 
C)  futures exchange rate 
D)  spread 
A)  spot exchange rate 
B)  forward exchange rate 
C)  futures exchange rate 
D)  spread

Question 6

A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?

Accepted Answer

A)  The United States offers a better deal. 
B)  The deal is the same in both countries. 
C)  Britain offers a better deal. 
D)  A trader can make money by buying the shoes in Britain and selling in the United States at $50. 
A)  The United States offers a better deal. 
B)  The deal is the same in both countries. 
C)  Britain offers a better deal. 
D)  A trader can make money by buying the shoes in Britain and selling in the United States at $50.

Question 7

The International Fisher Effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

Accepted Answer

A) True 
 B)False

Question 8

Identify the correct statement about the PPP theory.

Accepted Answer

A)  It predicts that exchange rates are determined by relative prices. 
B)  It yields accurate predictions of short-run movements in exchange rates. 
C)  It best predicts exchange rate changes for countries with low rates of inflation. 
D)  It includes transportation costs and trade tariffs. 
A)  It predicts that exchange rates are determined by relative prices. 
B)  It yields accurate predictions of short-run movements in exchange rates. 
C)  It best predicts exchange rate changes for countries with low rates of inflation. 
D)  It includes transportation costs and trade tariffs.

Question 9

________ are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Accepted Answer

A)  Carry trades 
B)  Currency swaps 
C)  Arbitrages 
D)  Currency pairing 
A)  Carry trades 
B)  Currency swaps 
C)  Arbitrages 
D)  Currency pairing

Question 10

Discuss the two schools of thought on exchange rate forecasting.

Accepted Answer

There are two schools of thought on whet

Question 11

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

Accepted Answer

The foreign exchange market is not locat

Question 12

Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about

Accepted Answer

A)  anticipated currency swap rates. 
B)  stability in the global marketplace. 
C)  future currency movements. 
D)  the carry trades that will occur. 
A)  anticipated currency swap rates. 
B)  stability in the global marketplace. 
C)  future currency movements. 
D)  the carry trades that will occur.

Question 13

There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates.

Accepted Answer

A) True 
 B)False

Question 14

The purchasing power parity (PPP) theory is a strong predictor of short-run movements in exchange rates covering time spans of five years or less.

Accepted Answer

A) True 
 B)False

Question 15

Governments allow convertibility to preserve their foreign exchange reserves.

Accepted Answer

A) True 
 B)False

Question 16

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen?

Accepted Answer

A)  The dollar will appreciate against the yen. 
B)  The dollar will depreciate against the yen. 
C)  The exchange rates will remain the same. 
D)  The yen will appreciate against the dollar. 
A)  The dollar will appreciate against the yen. 
B)  The dollar will depreciate against the yen. 
C)  The exchange rates will remain the same. 
D)  The yen will appreciate against the dollar.

Question 17

What are the main uses of foreign exchange markets for international business?

Accepted Answer

The foreign exchange market serves four

Question 18

Which term refers to the rate at which one currency is converted into another?

Accepted Answer

A)  basis point 
B)  spread 
C)  exchange rate 
D)  interchange rate 
A)  basis point 
B)  spread 
C)  exchange rate 
D)  interchange rate

Question 19

________ are exchange rates governing some specific future date foreign exchange transactions.

Accepted Answer

A)  Spot exchange rates 
B)  Forward exchange rates 
C)  Future exchange rates 
D)  Currency swaps 
A)  Spot exchange rates 
B)  Forward exchange rates 
C)  Future exchange rates 
D)  Currency swaps

Question 20

________ uses price and volume data to determine past trends, which are expected to continue into the future.

Accepted Answer

A)  Technical analysis 
B)  Fundamental analysis 
C)  Efficient market theory 
D)  Value investing 
A)  Technical analysis 
B)  Fundamental analysis 
C)  Efficient market theory 
D)  Value investing

The purchasing power parity (PPP) theory argues that the exchange rate will

The ________ helps consumers compare the relative prices of goods and services in different countries.

A lag strategy involves

With the help of an example, explain how a tourist participates in the foreign exchange market.

The ________ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?

The International Fisher Effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

Identify the correct statement about the PPP theory.

________ are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Discuss the two schools of thought on exchange rate forecasting.

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about

There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates.

The purchasing power parity (PPP) theory is a strong predictor of short-run movements in exchange rates covering time spans of five years or less.

Governments allow convertibility to preserve their foreign exchange reserves.

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen?

What are the main uses of foreign exchange markets for international business?

Which term refers to the rate at which one currency is converted into another?

________ are exchange rates governing some specific future date foreign exchange transactions.

________ uses price and volume data to determine past trends, which are expected to continue into the future.

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Global Capital Market

The Strategy of International Business

The Organization of International Business

Entry Strategy and Strategic Alliances

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and R&D

Global Human Resource Management

Accounting and Finance in the International Business

Filters

Exam 10: The Foreign Exchange Market

The purchasing power parity (PPP) theory argues that the exchange rate will

The ________ helps consumers compare the relative prices of goods and services in different countries.

A lag strategy involves

With the help of an example, explain how a tourist participates in the foreign exchange market.

The ________ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?

The International Fisher Effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

Identify the correct statement about the PPP theory.

________ are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.

Discuss the two schools of thought on exchange rate forecasting.

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about

There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates.

The purchasing power parity (PPP) theory is a strong predictor of short-run movements in exchange rates covering time spans of five years or less.

Governments allow convertibility to preserve their foreign exchange reserves.

If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen?

What are the main uses of foreign exchange markets for international business?

Which term refers to the rate at which one currency is converted into another?

________ are exchange rates governing some specific future date foreign exchange transactions.

________ uses price and volume data to determine past trends, which are expected to continue into the future.

Globalization

National Differences in Political, Economic, and Legal Systems

National Differences in Economic Development

Differences in Culture

Ethics, Corporate Social Responsibility, and Sustainability

International Trade Theory

Government Policy and International Trade

Foreign Direct Investment

Regional Economic Integration

The International Monetary System

The Global Capital Market

The Strategy of International Business

The Organization of International Business

Entry Strategy and Strategic Alliances

Exporting, Importing, and Countertrade

Global Production and Supply Chain Management

Global Marketing and R&D

Global Human Resource Management

Accounting and Finance in the International Business

Filters