Question 1

Refer to Exhibit 11.1.If U.S.investors cover their exchange rate risk,the extra return for the 6 months on the U.K.treasury bills is:

Accepted Answer

A)  1.0 percent 
B)  1.5 percent 
C)  2.0 percent 
D)  2.5 percent 
A)  1.0 percent 
B)  1.5 percent 
C)  2.0 percent 
D)  2.5 percent

Question 2

Figure 11.3 The Market for the Euro  
-Refer to Figure 11.3.If the supply curve shifts from S2 to S1

Accepted Answer

A)  the dollar has depreciated relative to the Euro 
B)  the euro has appreciated relative to the dollar 
C)  the euro has depreciated relative to the dollar 
D)  both a and b 
A)  the dollar has depreciated relative to the Euro 
B)  the euro has appreciated relative to the dollar 
C)  the euro has depreciated relative to the dollar 
D)  both a and b

Question 3

Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days.You can remove the risk of loss due to a devaluation of the pound sterling by:

Accepted Answer

A)  Selling sterling in the forward market for 60-day delivery 
B)  Buying sterling now and selling it at the end of 60 days 
C)  Selling the dollar equivalent in the forward market for 60-day delivery 
D)  Keeping the sterling in Britain after it is delivered to you 
A)  Selling sterling in the forward market for 60-day delivery 
B)  Buying sterling now and selling it at the end of 60 days 
C)  Selling the dollar equivalent in the forward market for 60-day delivery 
D)  Keeping the sterling in Britain after it is delivered to you

Question 4

A U.S.export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange risk by:

Accepted Answer

A)  Buying today 1 million pounds in the forward market for delivery in six months 
B)  Buying 1 million pounds in the spot market for delivery in six months 
C)  Selling 1 million pounds in the spot market for delivery in six months 
D)  Selling today 1 million pounds in the forward market for delivery in six months 
A)  Buying today 1 million pounds in the forward market for delivery in six months 
B)  Buying 1 million pounds in the spot market for delivery in six months 
C)  Selling 1 million pounds in the spot market for delivery in six months 
D)  Selling today 1 million pounds in the forward market for delivery in six months

Question 5

Most foreign exchange trading is carried out in the forward market.

Accepted Answer

A) True 
 B)False

Question 6

An increase in the dollar price of other currencies tends to cause:

Accepted Answer

A)  U.S.goods to be cheaper than foreign goods 
B)  U.S.goods to be more expensive than foreign goods 
C)  Foreign goods to be more expensive to residents of foreign nations 
D)  Foreign goods to be cheaper to residents of the United States 
A)  U.S.goods to be cheaper than foreign goods 
B)  U.S.goods to be more expensive than foreign goods 
C)  Foreign goods to be more expensive to residents of foreign nations 
D)  Foreign goods to be cheaper to residents of the United States

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

A person needing foreign exchange immediately would purchase it on the spot market.

Accepted Answer

A) True 
 B)False

Question 10

Is it possible to trade foreign exchange in the futures market? How does such trading differ from the forward market?

Accepted Answer

Yes.In the futures market,contracting pa

Question 11

A (An)____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future:

Accepted Answer

A)  Arbitrage 
B)  Swap 
C)  Option 
D)  Hedge 
A)  Arbitrage 
B)  Swap 
C)  Option 
D)  Hedge

Question 12

Which of the following would not induce the U.S.demand curve for foreign exchange to shift backward to the left?

Accepted Answer

A)  Worsening American tastes for goods produced overseas 
B)  Decreasing interest rates in the U.S.compared to those overseas 
C)  A fall in the level of U.S.income 
D)  A depreciation in the U.S.dollar against foreign currencies 
A)  Worsening American tastes for goods produced overseas 
B)  Decreasing interest rates in the U.S.compared to those overseas 
C)  A fall in the level of U.S.income 
D)  A depreciation in the U.S.dollar against foreign currencies

Question 13

How is the equilibrium rate of exchange determined?

Accepted Answer

The equilibrium rate of exchan

Question 14

The demand schedule for Swiss francs is always downsloping while the supply schedule of francs is always upsloping.

Accepted Answer

A) True 
 B)False

Question 15

-Refer to Table 11.4.On Wednesday,the 30-day forward franc was selling at a:

Accepted Answer

A)  1 percent premium per annum against the dollar 
B)  2 percent premium per annum against the dollar 
C)  1 percent discount per annum against the dollar 
D)  2 percent discount per annum against the dollar 
A)  1 percent premium per annum against the dollar 
B)  2 percent premium per annum against the dollar 
C)  1 percent discount per annum against the dollar 
D)  2 percent discount per annum against the dollar

Question 16

The offer rate

Accepted Answer

A)  Is the price at which the bank is willing to sell a unit of foreign currency 
B)  Is the price that the bank is willing to pay for a unit of foreign currency 
C)  Is synonymous with the spread rate 
D)  None of the above 
A)  Is the price at which the bank is willing to sell a unit of foreign currency 
B)  Is the price that the bank is willing to pay for a unit of foreign currency 
C)  Is synonymous with the spread rate 
D)  None of the above

Question 17

The U.S.demand for pounds is derived from U.S.exports to the United Kingdom,U.K.investments in the United States,and U.K.tourist expenditures in the United States.

Accepted Answer

A) True 
 B)False

Question 18

If the trade-weighted dollar moves from an index value to 100 to 110,the dollar depreciates by 10 percent against the trade-weighted averages of the exchange rates of the major trading partners of the United States.

Accepted Answer

A) True 
 B)False

Question 19

Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States.The exchange rate between the franc and the dollar is:

Accepted Answer

A)  2 francs per dollar 
B)  1 franc per dollar 
C)  $2 per franc 
D)  $3 per franc 
A)  2 francs per dollar 
B)  1 franc per dollar 
C)  $2 per franc 
D)  $3 per franc

Question 20

Refer to Exhibit 11.1.If the price of the 6-month forward pound were to ____,U.S.investors would no longer earn an extra return by shifting funds to the United Kingdom.

Accepted Answer

A)  Rise to $1.52 
B)  Rise to $1.53 
C)  Fall to $1.48 
D)  Fall to $1.47 
A)  Rise to $1.52 
B)  Rise to $1.53 
C)  Fall to $1.48 
D)  Fall to $1.47

Refer to Exhibit 11.1.If U.S.investors cover their exchange rate risk,the extra return for the 6 months on the U.K.treasury bills is:

Figure 11.3 The Market for the Euro -Refer to Figure 11.3.If the supply curve shifts from S₂ to S₁

Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days.You can remove the risk of loss due to a devaluation of the pound sterling by:

A U.S.export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange risk by:

Most foreign exchange trading is carried out in the forward market.

An increase in the dollar price of other currencies tends to cause:

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

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

A person needing foreign exchange immediately would purchase it on the spot market.

Is it possible to trade foreign exchange in the futures market? How does such trading differ from the forward market?

A (An)____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future:

Which of the following would not induce the U.S.demand curve for foreign exchange to shift backward to the left?

How is the equilibrium rate of exchange determined?

The demand schedule for Swiss francs is always downsloping while the supply schedule of francs is always upsloping.

-Refer to Table 11.4.On Wednesday,the 30-day forward franc was selling at a:

The offer rate

The U.S.demand for pounds is derived from U.S.exports to the United Kingdom,U.K.investments in the United States,and U.K.tourist expenditures in the United States.

If the trade-weighted dollar moves from an index value to 100 to 110,the dollar depreciates by 10 percent against the trade-weighted averages of the exchange rates of the major trading partners of the United States.

Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States.The exchange rate between the franc and the dollar is:

Refer to Exhibit 11.1.If the price of the 6-month forward pound were to ____,U.S.investors would no longer earn an extra return by shifting funds to the United Kingdom.

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

Exam 11: Foreign Exchange

Refer to Exhibit 11.1.If U.S.investors cover their exchange rate risk,the extra return for the 6 months on the U.K.treasury bills is:

Figure 11.3 The Market for the Euro -Refer to Figure 11.3.If the supply curve shifts from S2 to S1

Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days.You can remove the risk of loss due to a devaluation of the pound sterling by:

A U.S.export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange risk by:

Most foreign exchange trading is carried out in the forward market.

An increase in the dollar price of other currencies tends to cause:

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

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

A person needing foreign exchange immediately would purchase it on the spot market.

Is it possible to trade foreign exchange in the futures market? How does such trading differ from the forward market?

A (An)____ is an arrangement by which two parties exchange one currency for another and agree that the exchange will be reversed at a stipulated date in the future:

Which of the following would not induce the U.S.demand curve for foreign exchange to shift backward to the left?

How is the equilibrium rate of exchange determined?

The demand schedule for Swiss francs is always downsloping while the supply schedule of francs is always upsloping.

-Refer to Table 11.4.On Wednesday,the 30-day forward franc was selling at a:

The offer rate

The U.S.demand for pounds is derived from U.S.exports to the United Kingdom,U.K.investments in the United States,and U.K.tourist expenditures in the United States.

If the trade-weighted dollar moves from an index value to 100 to 110,the dollar depreciates by 10 percent against the trade-weighted averages of the exchange rates of the major trading partners of the United States.

Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States.The exchange rate between the franc and the dollar is:

Refer to Exhibit 11.1.If the price of the 6-month forward pound were to ____,U.S.investors would no longer earn an extra return by shifting funds to the United Kingdom.

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Exchange-Rate Systems and Currency Crises

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

Figure 11.3 The Market for the Euro -Refer to Figure 11.3.If the supply curve shifts from S₂ to S₁