Question 1

The euro-pound cross exchange rate can be computed as:

Accepted Answer

A) S(€/£) = S($/£) * S(€/$) 
B)    
C)    
D) all of the above 
A) S(€/£) = S($/£) * S(€/$) 
B)    
C)    
D) all of the above

Question 2

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

Accepted Answer

A) €0.5386/CHF 
B) €0.5389/CHF 
C) €0.5463/CHF 
D) €0.5466/CHF 
A) €0.5386/CHF 
B) €0.5389/CHF 
C) €0.5463/CHF 
D) €0.5466/CHF

Question 3

Consider the following spot and forward rate quotations for the Swiss franc?   Which of the following is true:

Accepted Answer

A) The Swiss franc is definitely going to be worth more dollars in six months. 
B) The Swiss franc is probably going to be worth less in dollars in six months. 
C) The Swiss franc is trading at a forward discount. 
D) The Swiss franc is trading at a forward premium. 
A) The Swiss franc is definitely going to be worth more dollars in six months. 
B) The Swiss franc is probably going to be worth less in dollars in six months. 
C) The Swiss franc is trading at a forward discount. 
D) The Swiss franc is trading at a forward premium.

Question 4

What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Canadian dollars.

Accepted Answer

A) €0.6094/CAD 
B) €0.6104/CAD 
C) €0.6181/CAD 
D) €0.6191/CAD 
A) €0.6094/CAD 
B) €0.6104/CAD 
C) €0.6181/CAD 
D) €0.6191/CAD

Question 5

The current spot exchange rate is $1.45/€ and the three-month forward rate is $1.55/€.Based upon your economic forecast,you are pretty confident that the spot exchange rate will be $1.50/€ in three months.Assume that you would like to buy or sell €100,000.What actions would you take to speculate in the forward market? How much will you make if your prediction is correct?

Accepted Answer

A) Take a short position in a forward.If you're right you will make $15,000. 
B) Take a long position in a forward contract on euro.If you're right you will make $5,000. 
C) Take a short position in a forward contract on euro.If you're right you will make $5,000. 
D) Take a long position in a forward contract on euro.If you're right you will make $15,000. 
A) Take a short position in a forward.If you're right you will make $15,000. 
B) Take a long position in a forward contract on euro.If you're right you will make $5,000. 
C) Take a short position in a forward contract on euro.If you're right you will make $5,000. 
D) Take a long position in a forward contract on euro.If you're right you will make $15,000.

Question 6

Most foreign exchange transactions are for

Accepted Answer

A) intervention by central banks. 
B) interbank trades between international banks or nonbank dealers. 
C) retail trade. 
D) purchase of hard currencies. 
A) intervention by central banks. 
B) interbank trades between international banks or nonbank dealers. 
C) retail trade. 
D) purchase of hard currencies.

Question 7

Consider the balance sheets of Bank A and Bank B.Bank A is in Milan,Bank B is in New York.The current exchange rate is €1.00 = $1.25.Show the correct balances in each account if a currency trader employed at Bank A buys €100,000 from a currency trader at bank B for $125,000 using its correspondent relationship with Bank B.

Accepted Answer

(See also the PowerP

Question 8

Intervention in the foreign exchange market is the process of

Accepted Answer

A) a central bank requiring the commercial banks of that country to trade at a set price level. 
B) commercial banks in different countries coordinating efforts in order to stabilize one or more currencies. 
C) a central bank buying or selling its currency in order to influence its value. 
D) the government of a country prohibiting transactions in one or more currencies. 
A) a central bank requiring the commercial banks of that country to trade at a set price level. 
B) commercial banks in different countries coordinating efforts in order to stabilize one or more currencies. 
C) a central bank buying or selling its currency in order to influence its value. 
D) the government of a country prohibiting transactions in one or more currencies.

Question 9

Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.

Accepted Answer

A) In dealer jargon, this is a currency against currency trade. 
B) The bank will frequently handle such a trade by selling British pounds for U.S.dollars and then buying Swiss francs with U.S.dollars. 
C) The bank would typically sell the British pounds directly for Swiss francs. 
D) Both a) and b) 
A) In dealer jargon, this is a currency against currency trade. 
B) The bank will frequently handle such a trade by selling British pounds for U.S.dollars and then buying Swiss francs with U.S.dollars. 
C) The bank would typically sell the British pounds directly for Swiss francs. 
D) Both a) and b)

Question 10

Consider a U.S.importer desiring to purchase merchandise from a Dutch exporter invoiced in euros,at a cost of €512,100.The U.S.importer will contact his U.S.bank (where of course he has an account denominated in U.S.dollars)and inquire about the exchange rate,which the bank quotes as €1.0242/$1.00.The importer accepts this price,so his bank will ____________the importer's account in the amount of ____________.

Accepted Answer

A) debit, $500,000 
B) credit, €512,100 
C) credit, $500,000 
D) debit, €512,100 
A) debit, $500,000 
B) credit, €512,100 
C) credit, $500,000 
D) debit, €512,100

Question 11

The spot market

Accepted Answer

A) involves the almost-immediate purchase or sale of foreign exchange. 
B) involves the sale of futures, forwards, and options on foreign exchange. 
C) takes place only on the floor of a physical exchange. 
D) all of the above. 
A) involves the almost-immediate purchase or sale of foreign exchange. 
B) involves the sale of futures, forwards, and options on foreign exchange. 
C) takes place only on the floor of a physical exchange. 
D) all of the above.

Question 12

Using the table above,what is the ask price of euro in terms of pounds?

Accepted Answer

A) €1.3371/£ 
B) €1.3378/£ 
C) £0.7475/€ 
D) £0.7479/€ 
A) €1.3371/£ 
B) €1.3378/£ 
C) £0.7475/€ 
D) £0.7479/€

Question 13

The Singapore dollar-U.S.dollar (S$/$)spot exchange rate is S$1.60/$,the Canadian dollar-U.S.dollar (CD/$)spot rate is CD1.33/$ and the S$/CD1.15.Determine the triangular arbitrage profit that is possible if you have $1,000,000.

Accepted Answer

A) $44,063 profit 
B) $46,093 loss 
C) No profit is possible 
D) $46,093 profit 
A) $44,063 profit 
B) $46,093 loss 
C) No profit is possible 
D) $46,093 profit

Question 14

Spot foreign exchange trading

Accepted Answer

A) accounts for about 5 percent of all foreign exchange trading. 
B) accounts for about 20 percent of all foreign exchange trading. 
C) accounts for about 33 percent of all foreign exchange trading. 
D) accounts for about 70 percent of all foreign exchange trading. 
A) accounts for about 5 percent of all foreign exchange trading. 
B) accounts for about 20 percent of all foreign exchange trading. 
C) accounts for about 33 percent of all foreign exchange trading. 
D) accounts for about 70 percent of all foreign exchange trading.

Question 15

The difference between a broker and a dealer is

Accepted Answer

A) dealers sell drugs; brokers sell houses. 
B) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy and sell from their inventory. 
C) brokers transact in stocks and bonds; currency is bought and sold through dealers. 
D) none of the above 
A) dealers sell drugs; brokers sell houses. 
B) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy and sell from their inventory. 
C) brokers transact in stocks and bonds; currency is bought and sold through dealers. 
D) none of the above

Question 16

At the wholesale level

Accepted Answer

A) most trading takes place OTC between individuals on the floor of the exchange. 
B) most trading takes place over the phone. 
C) most trading flows over Reuters and EBS platforms. 
D) most trading flows through specialized "broking" firms. 
A) most trading takes place OTC between individuals on the floor of the exchange. 
B) most trading takes place over the phone. 
C) most trading flows over Reuters and EBS platforms. 
D) most trading flows through specialized "broking" firms.

Question 17

The SF/$ spot exchange rate is SF1.25/$ and the 180 forward premium is 8 percent.What is the outright 180 day forward exchange rate?

Accepted Answer

A) SF1.30/$ 
B) SF1.35/$ 
C) SF6.25/$ 
D) None of the above 
A) SF1.30/$ 
B) SF1.35/$ 
C) SF6.25/$ 
D) None of the above

Question 18

The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.You enter into a short position on €1,000.At maturity,the spot exchange rate is $1.60/€.How much have you made or lost?

Accepted Answer

A) Lost $100 
B) Made €100 
C) Lost $50 
D) Made $150 
A) Lost $100 
B) Made €100 
C) Lost $50 
D) Made $150

Question 19

For a U.S.trader working in American quotes,if the forward price is higher than the spot price

Accepted Answer

A) the currency is trading at a premium in the forward market. 
B) the currency is trading at a discount in the forward market. 
C) then you should buy at the spot, hold on to it and sell at the forward-it's a built-in arbitrage. 
D) all of the above-it really depends if you're talking American or European quotes. 
A) the currency is trading at a premium in the forward market. 
B) the currency is trading at a discount in the forward market. 
C) then you should buy at the spot, hold on to it and sell at the forward-it's a built-in arbitrage. 
D) all of the above-it really depends if you're talking American or European quotes.

Question 20

The Bid price

Accepted Answer

A) is the price that the dealer has just paid for something, his historical cost of the most recent trade. 
B) is the price that a dealer stands ready to pay. 
C) refers only to auctions like eBay, not over the counter transactions with dealers. 
D) is the price that a dealer stands ready to sell at. 
A) is the price that the dealer has just paid for something, his historical cost of the most recent trade. 
B) is the price that a dealer stands ready to pay. 
C) refers only to auctions like eBay, not over the counter transactions with dealers. 
D) is the price that a dealer stands ready to sell at.

The euro-pound cross exchange rate can be computed as:

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

Consider the following spot and forward rate quotations for the Swiss franc? Which of the following is true:

What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Canadian dollars.

Most foreign exchange transactions are for

Intervention in the foreign exchange market is the process of

Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.

The spot market

Using the table above,what is the ask price of euro in terms of pounds?

The Singapore dollar-U.S.dollar (S$/$)spot exchange rate is S$1.60/$,the Canadian dollar-U.S.dollar (CD/$)spot rate is CD1.33/$ and the S$/CD1.15.Determine the triangular arbitrage profit that is possible if you have $1,000,000.

Spot foreign exchange trading

The difference between a broker and a dealer is

At the wholesale level

The SF/$ spot exchange rate is SF1.25/$ and the 180 forward premium is 8 percent.What is the outright 180 day forward exchange rate?

The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.You enter into a short position on €1,000.At maturity,the spot exchange rate is $1.60/€.How much have you made or lost?

For a U.S.trader working in American quotes,if the forward price is higher than the spot price

The Bid price

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 5: The Market for Foreign Exchange

The euro-pound cross exchange rate can be computed as:

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

Consider the following spot and forward rate quotations for the Swiss franc? Which of the following is true:

What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Canadian dollars.

Most foreign exchange transactions are for

Intervention in the foreign exchange market is the process of

Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.

The spot market

Using the table above,what is the ask price of euro in terms of pounds?

The Singapore dollar-U.S.dollar (S$/$)spot exchange rate is S$1.60/$,the Canadian dollar-U.S.dollar (CD/$)spot rate is CD1.33/$ and the S$/CD1.15.Determine the triangular arbitrage profit that is possible if you have $1,000,000.

Spot foreign exchange trading

The difference between a broker and a dealer is

At the wholesale level

The SF/$ spot exchange rate is SF1.25/$ and the 180 forward premium is 8 percent.What is the outright 180 day forward exchange rate?

The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.You enter into a short position on €1,000.At maturity,the spot exchange rate is $1.60/€.How much have you made or lost?

For a U.S.trader working in American quotes,if the forward price is higher than the spot price

The Bid price

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters