Question 1

The foreign exchange market closes

Accepted Answer

A) Never. 
B) 4:00 p.m. EST (New York time). 
C) 4:00 p.m. GMT (London time). 
D) 4:00 p.m. (Tokyo time). 
A) Never. 
B) 4:00 p.m. EST (New York time). 
C) 4:00 p.m. GMT (London time). 
D) 4:00 p.m. (Tokyo time).

Question 2

When a currency trades at a discount in the forward market

Accepted Answer

A) the forward rate is less than the spot rate. 
B) the forward rate is more than the spot rate. 
C) the forward exchange rate is less than one dollar . 
D) the exchange rate is less than it was yesterday. 
A) the forward rate is less than the spot rate. 
B) the forward rate is more than the spot rate. 
C) the forward exchange rate is less than one dollar . 
D) the exchange rate is less than it was yesterday.

Question 3

Most interbank trades are

Accepted Answer

A) speculative or arbitrage transactions. 
B) simple order processing for the retail client. 
C) overnight loans from one bank to another. 
D) brokered by dealers. 
A) speculative or arbitrage transactions. 
B) simple order processing for the retail client. 
C) overnight loans from one bank to another. 
D) brokered by dealers.

Question 4

Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00. Calculate the euro-pound exchange rate.

Accepted Answer

A) €1.3333 = £1.00 
B) £1.3333 = €1.00 
C) €3.00 = £1 
D) €1.25 = £1.00 
A) €1.3333 = £1.00 
B) £1.3333 = €1.00 
C) €3.00 = £1 
D) €1.25 = £1.00

Question 5

Suppose a bank customer with €1,000,000 wishes to trade out of euro and into Japanese yen. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120. How many yen will the customer get?

Accepted Answer

A) ¥192,000,000 
B) ¥5,208,333 
C) ¥75,000,000 
D) ¥5,208.33 
A) ¥192,000,000 
B) ¥5,208,333 
C) ¥75,000,000 
D) ¥5,208.33

Question 6

A dealer in British pounds who thinks that the pound is about to appreciate

Accepted Answer

A) may want to widen his bid-ask spread by raising his ask price. 
B) may want to lower his bid price. 
C) may want to lower his ask price. 
D) none of the above 
A) may want to widen his bid-ask spread by raising his ask price. 
B) may want to lower his bid price. 
C) may want to lower his ask price. 
D) none of the above

Question 7

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 8

A dealer in pounds who thinks that the exchange rate is about to increase in volatility

Accepted Answer

A) may want to widen his bid-ask spread. 
B) may want to decrease his bid-ask spread. 
C) may want to lower his ask price. 
D) none of the above. 
A) may want to widen his bid-ask spread. 
B) may want to decrease his bid-ask spread. 
C) may want to lower his ask price. 
D) none of the above.

Question 9

Suppose that the current exchange rate is €1.00 = $1.60. The indirect quote, from the U.S. perspective is

Accepted Answer

A) €1.00 = $1.60. 
B) €0.6250 = $1.00. 
C) €1.60 = $1.00. 
D) None of the above 
A) €1.00 = $1.60. 
B) €0.6250 = $1.00. 
C) €1.60 = $1.00. 
D) None of the above

Question 10

Consider the balance sheets of Bank A and BankB. 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 BankB.

Accepted Answer

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Question 11

The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

Accepted Answer

A)  Bank A's dollar-denominated account at B will fall by $90,000. 
B)  Bank B's dollar-denominated account at A will rise by $90,000. 
C)  Bank A's pound-denominated account at B will rise by £45,000. 
D)  Bank B's pound-denominated account at A will fall by £45,000. 
E)  All of the above are correct 
A)  Bank A's dollar-denominated account at B will fall by $90,000. 
B)  Bank B's dollar-denominated account at A will rise by $90,000. 
C)  Bank A's pound-denominated account at B will rise by £45,000. 
D)  Bank B's pound-denominated account at A will fall by £45,000. 
E)  All of the above are correct

Question 12

What is the ASK cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will take in euro to sell 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 13

It is common practice among currency traders worldwide to both price and trade currencies against the U.S. dollar. In fact, 2007 BIS statistics indicate that about ______ percent of currency trading in the world involves the U.S. dollar on one side of the transaction.

Accepted Answer

A) 86 percent 
B) 75 percent 
C) 45 percent 
D) 15 percent 
A) 86 percent 
B) 75 percent 
C) 45 percent 
D) 15 percent

Question 14

The forward market

Accepted Answer

A) involves contracting today for the future purchase of sale of foreign exchange at the spot rate that will prevail at the maturity of the contract. 
B) involves contracting today for the future purchase of sale of foreign exchange at a price agreed upon today. 
C) involves contracting today for the right but not obligation to the future purchase of sale of foreign exchange at a price agreed upon today. 
D) none of the above 
A) involves contracting today for the future purchase of sale of foreign exchange at the spot rate that will prevail at the maturity of the contract. 
B) involves contracting today for the future purchase of sale of foreign exchange at a price agreed upon today. 
C) involves contracting today for the right but not obligation to the future purchase of sale of foreign exchange at a price agreed upon today. 
D) none of the above

Question 15

It is common practice among currency traders worldwide to both price and trade currencies against the U.S. dollar. Consider a currency dealer who makes a market in 5 currencies against the dollar. If he were to supply quotes for each currency in terms of all of the others, how many quotes would he have to provide?

Accepted Answer

A) 36 
B) 30 
C) 60 
D) 120 
E) None of the above 
A) 36 
B) 30 
C) 60 
D) 120 
E) None of the above

Question 16

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 17

You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.50 how much money can an astute trader make?

Accepted Answer

A) No arbitrage is possible 
B) $1,160,000 
C) $500,000 
D) $250,000 
A) No arbitrage is possible 
B) $1,160,000 
C) $500,000 
D) $250,000

Question 18

The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the euro-yen cross rate?

Accepted Answer

A) ¥125 = €1.00 
B) ¥1.00 = €125 
C) ¥1.00 = €0.80 
D) None of the above 
A) ¥125 = €1.00 
B) ¥1.00 = €125 
C) ¥1.00 = €0.80 
D) None of the above

The foreign exchange market closes

When a currency trades at a discount in the forward market

Most interbank trades are

Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00. Calculate the euro-pound exchange rate.

Suppose a bank customer with €1,000,000 wishes to trade out of euro and into Japanese yen. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120. How many yen will the customer get?

A dealer in British pounds who thinks that the pound is about to appreciate

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.

A dealer in pounds who thinks that the exchange rate is about to increase in volatility

Suppose that the current exchange rate is €1.00 = $1.60. The indirect quote, from the U.S. perspective is

The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

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

It is common practice among currency traders worldwide to both price and trade currencies against the U.S. dollar. In fact, 2007 BIS statistics indicate that about ______ percent of currency trading in the world involves the U.S. dollar on one side of the transaction.

The forward market

You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.50 how much money can an astute trader make?

The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the euro-yen cross rate?

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 foreign exchange market closes

When a currency trades at a discount in the forward market

Most interbank trades are

Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00. Calculate the euro-pound exchange rate.

Suppose a bank customer with €1,000,000 wishes to trade out of euro and into Japanese yen. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120. How many yen will the customer get?

A dealer in British pounds who thinks that the pound is about to appreciate

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.

A dealer in pounds who thinks that the exchange rate is about to increase in volatility

Suppose that the current exchange rate is €1.00 = $1.60. The indirect quote, from the U.S. perspective is

The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

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

It is common practice among currency traders worldwide to both price and trade currencies against the U.S. dollar. In fact, 2007 BIS statistics indicate that about ______ percent of currency trading in the world involves the U.S. dollar on one side of the transaction.

The forward market

You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.50 how much money can an astute trader make?

The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the euro-yen cross rate?

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