Exam 11: Foreign Exchange

In the interbank market for foreign exchange,the ____ refers to the difference between the offer rate and the bid rate.

Figure 11.1.Supply and Demand Schedules of Francs -Refer to Figure 11.1.Suppose the exchange rate is $.30 per franc.At this exchange rate there is an ____ of francs which leads to a ____ in the dollar price of the franc,a (an)____ in the quantity of francs supplied,and a (an)____ in the quantity of francs demanded.

A commercial bank profits from foreign-exchange trading when its bid rate exceeds its offer rate.

Suppose the exchange value of the British pound is $2 per pound while the exchange value of the Swiss franc is 50 cents per pound.The cross exchange rate between the pound and the franc is:

Given an upward-sloping supply schedule of pounds and a downward-sloping demand schedule for pounds,an increase in the supply schedule causes an appreciation of the dollar against the pound.

The bid rate refers to the price at which a bank is willing to sell a unit of foreign currency; the offer rate is the price at which a bank is willing to buy a unit of foreign currency.

Foreign-exchange brokers help commercial banks carry out foreign exchange trading and maintain desired balances of foreign exchange.

During the era of dollar appreciation,in the 1980s,a main reason why the dollar did not fall in value was:

Stabilizing speculation reinforces market forces by intensifying an appreciation or a depreciation in a currency's exchange value.

Suppose that real incomes increase more rapidly in the United States than in Mexico.In the United States,this situation would likely result in a (an):

-Refer to Table 11.2.At the exchange rate of $1.40 per pound,there is an ____ for pounds.This imbalance causes ____ in the price of the pound,which leads to ____ in the quantity of pounds supplied and ____ in the quantity of pounds demanded.

If it takes $1.5515 to buy 1 pound and $0.6845 to buy 1 franc,it takes 2.27 francs to buy 1 pound.

As the dollar's exchange value appreciates against the pound,U.S.residents tend to import more British goods and thus demand more pounds.

A "call" option gives General Motors the right to sell pounds at a specified price,while a put option gives General Motors the right to buy pounds at a specified price.

-Referring to Table 11.3,the cross exchange rate between the euro and Swiss franc is approximately:

-Refer to Table 11.4.On Wednesday,the 180-day forward franc was selling at a:

Assume that you are the Chase Manhattan Bank of the United States,and you have 1 million Swiss francs in your vault that you will need to use in 30 days.Moreover,you need 500,000 British pounds for the next 30 days.You arrange to loan your francs to Barclays Bank of London for 30 days in exchange for 500,000 pounds today,and reverse the transaction at the end of 30 days.You have just arranged a:

A foreign currency option is an agreement between a holder (corporation)and a writer (commercial bank)giving the holder the right to buy or sell a certain amount of foreign currency at any time through some specified date.

-Refer to Table 11.4.On Wednesday,the 90-day forward franc was selling at a:

The supply of foreign currency may be: