Question 1

Which of the following statements is the most accurate?

Accepted Answer

A)  The U.S. and Canadian dollar have traded roughly at par since 1970. 
B)  The exchange rate (U.S.$ per Canadian $) has always been less than one since 1970. 
C)  The U.S. and Canadian dollar traded roughly at par in the early 1970s and as of 2006, is nearing par as the Canadian dollar rises. 
D)  The U.S. and Canadian dollar traded roughly at par in the early 1970s and as of 2006, is nearing par as the Canadian dollar falls. 
E)  None of the above. 
A)  The U.S. and Canadian dollar have traded roughly at par since 1970. 
B)  The exchange rate (U.S.$ per Canadian $) has always been less than one since 1970. 
C)  The U.S. and Canadian dollar traded roughly at par in the early 1970s and as of 2006, is nearing par as the Canadian dollar rises. 
D)  The U.S. and Canadian dollar traded roughly at par in the early 1970s and as of 2006, is nearing par as the Canadian dollar falls. 
E)  None of the above. C

Question 2

Nondeliverable forward exchange markets in centers such as Hong Kong and Singapore help to circumvent which problem?

Accepted Answer

A)  loss of goods shipped from Hong Kong and Singapore 
B)  inconvertible currencies cannot be traded in foreign markets 
C)  lag between the spot exchange date and the value date 
D)  high travel costs from Asia to "traditional" foreign exchange markets 
E)  unstable currencies that hold no purchasing power 
A)  loss of goods shipped from Hong Kong and Singapore 
B)  inconvertible currencies cannot be traded in foreign markets 
C)  lag between the spot exchange date and the value date 
D)  high travel costs from Asia to "traditional" foreign exchange markets 
E)  unstable currencies that hold no purchasing power B

Question 3

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.25 dollars per one British pound?

Accepted Answer

A)  50 dollars 
B)  60 dollars 
C)  70 dollars 
D)  62.5 dollars 
E)  40 British pounds 
A)  50 dollars 
B)  60 dollars 
C)  70 dollars 
D)  62.5 dollars 
E)  40 British pounds D

Question 4

Calculate the interest rate in the United States, if interest parity condition holds, for the following 15 cases:

Accepted Answer

The answer of Calculate the interest rate in the United...

Question 5

Which one of the following statements is the most accurate?

Accepted Answer

A)  Since dollar and yen interest rates are measured in comparable terms, they can move quite differently over time. 
B)  Since dollar and yen interest rates are not measured in comparable terms, they can move quite differently over time. 
C)  Since dollar and yen interest rates are measured in comparable terms, they move quite the same over time. 
D)  Since dollar and yen interest rates are measured in comparable terms, they still move quite differently over time. 
E)  Since dollar and yen interest rates are so similar, they move quite the same way over time. 
A)  Since dollar and yen interest rates are measured in comparable terms, they can move quite differently over time. 
B)  Since dollar and yen interest rates are not measured in comparable terms, they can move quite differently over time. 
C)  Since dollar and yen interest rates are measured in comparable terms, they move quite the same over time. 
D)  Since dollar and yen interest rates are measured in comparable terms, they still move quite differently over time. 
E)  Since dollar and yen interest rates are so similar, they move quite the same way over time.

Question 6

A foreign exchange swap

Accepted Answer

A)  is a spot sale of a currency. 
B)  is a forward repurchase of the currency. 
C)  is a spot sale of a currency combined with a forward repurchase of the currency. 
D)  is a spot sale of a currency combined with a forward sale of the currency. 
E)  make up a negligible proportion of all foreign exchange trading. 
A)  is a spot sale of a currency. 
B)  is a forward repurchase of the currency. 
C)  is a spot sale of a currency combined with a forward repurchase of the currency. 
D)  is a spot sale of a currency combined with a forward sale of the currency. 
E)  make up a negligible proportion of all foreign exchange trading.

Question 7

Who are the major participants in the foreign exchange market?

Accepted Answer

(1) Commercial banks

Question 8

What are the factors affecting the demand for foreign currency?

Accepted Answer

Three factors affect

Question 9

The Japanese currency is called the

Accepted Answer

A)  DM. 
B)  Yen. 
C)  Euro. 
D)  Dollar. 
E)  Pound. 
A)  DM. 
B)  Yen. 
C)  Euro. 
D)  Dollar. 
E)  Pound.

Question 10

What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 60 dollars in New York and 30 Pounds in London?

Accepted Answer

A)  1.5 dollars per British pound 
B)  0.5 dollars per British pound 
C)  2.5 dollars per British pound 
D)  3.5 dollars per British pound 
E)  2 dollars per British pound 
A)  1.5 dollars per British pound 
B)  0.5 dollars per British pound 
C)  2.5 dollars per British pound 
D)  3.5 dollars per British pound 
E)  2 dollars per British pound

Question 11

What is the expected dollar rate of return on euro deposits with today's exchange rate at $1.167 per euro, next year's expected exchange rate at $1.10 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

Accepted Answer

A)  10% 
B)  11% 
C)  -1% 
D)  0% 
A)  10% 
B)  11% 
C)  -1% 
D)  0%

Question 12

For the table below calculate the EXACT relationship.

Accepted Answer

The answer of For the table below calculate the EXACT...

Question 13

Which one of the following statements is the most accurate?

Accepted Answer

A)  A rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
B)  A rise in the interest rate offered by dollar deposits causes the dollar to depreciate. 
C)  A rise in the interest rate offered by dollar deposits does not affect the U.S. dollar. 
D)  For a given euro interest rate and constant expected exchange rate, a rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
E)  A rise in the interest rate offered by the dollar causes the euro to appreciate. 
A)  A rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
B)  A rise in the interest rate offered by dollar deposits causes the dollar to depreciate. 
C)  A rise in the interest rate offered by dollar deposits does not affect the U.S. dollar. 
D)  For a given euro interest rate and constant expected exchange rate, a rise in the interest rate offered by dollar deposits causes the dollar to appreciate. 
E)  A rise in the interest rate offered by the dollar causes the euro to appreciate.

Question 14

What is the expected dollar rate of return on dollar deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.165 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

Accepted Answer

A)  10% 
B)  11% 
C)  -1% 
D)  0% 
E)  15% 
A)  10% 
B)  11% 
C)  -1% 
D)  0% 
E)  15%

Question 15

Which of the following is not a major actor in the foreign exchange market?

Accepted Answer

A)  corporations 
B)  central banks 
C)  commercial banks 
D)  non-bank financial institutions 
E)  tourists 
A)  corporations 
B)  central banks 
C)  commercial banks 
D)  non-bank financial institutions 
E)  tourists

Question 16

Based on the case study, "A Tale of Two Dollars," explain why errors in the currency market can be more costly to the Toronto Blue Jays baseball team than errors in the field.

Accepted Answer

See end of Section 1. The Toronto team h

Question 17

Compute how many British pounds it would cost to buy a pair of American designer jeans costing $45?

Accepted Answer

The answer of Compute how many British pounds it would...

Question 18

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.50 dollars per one British pound?

Accepted Answer

A)  50 dollars 
B)  60 dollars 
C)  70 dollars 
D)  80 dollars 
E)  75 dollars 
A)  50 dollars 
B)  60 dollars 
C)  70 dollars 
D)  80 dollars 
E)  75 dollars

Question 19

Compute how many dollars it would cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds for the following exchange rates?

Accepted Answer

The answer of Compute how many dollars it would cost...

Question 20

Forward and spot exchange rates

Accepted Answer

A)  are necessarily equal. 
B)  do not move closely together. 
C)  are always such that the forward exchange rate is higher. 
D)  do move closely together, but are not necessarily equal. 
E)  are unrelated to the value date. 
A)  are necessarily equal. 
B)  do not move closely together. 
C)  are always such that the forward exchange rate is higher. 
D)  do move closely together, but are not necessarily equal. 
E)  are unrelated to the value date.

Exam 14: Exchange Rates and the Foreign Exchange Market: An Asset Approach

Which of the following statements is the most accurate?

Nondeliverable forward exchange markets in centers such as Hong Kong and Singapore help to circumvent which problem?

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.25 dollars per one British pound?

Calculate the interest rate in the United States, if interest parity condition holds, for the following 15 cases:

Which one of the following statements is the most accurate?

A foreign exchange swap

Who are the major participants in the foreign exchange market?

What are the factors affecting the demand for foreign currency?

The Japanese currency is called the

What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 60 dollars in New York and 30 Pounds in London?

What is the expected dollar rate of return on euro deposits with today's exchange rate at $1.167 per euro, next year's expected exchange rate at $1.10 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

For the table below calculate the EXACT relationship.

Which one of the following statements is the most accurate?

What is the expected dollar rate of return on dollar deposits with today's exchange rate at $1.10 per euro, next year's expected exchange rate at $1.165 per euro, the dollar interest rate at 10%, and the euro interest rate at 5%?

Which of the following is not a major actor in the foreign exchange market?

Based on the case study, "A Tale of Two Dollars," explain why errors in the currency market can be more costly to the Toronto Blue Jays baseball team than errors in the field.

Compute how many British pounds it would cost to buy a pair of American designer jeans costing $45?

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.50 dollars per one British pound?

Compute how many dollars it would cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds for the following exchange rates?

Forward and spot exchange rates

Introduction

World Trade: An Overview

Labor Productivity and Comparative Advantage: The Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: The Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: An Historical Overview

Optimum Currency Areas and the European Experience

Financial Globalization: Opportunity and Crisis

Developing Countries: Growth, Crisis, and Reform

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