Exam 11: Foreign Exchange

If it takes 113.28 yen to buy $1,it takes $.009624 to buy 1 yen.

The demand for foreign exchange is derived from credit transactions on the balance of payments.

Currency arbitrage tends to result in identical yen/dollar exchange rates in New York and in Tokyo.

If a Citibank dealer expects the Swiss franc to depreciate in the future,he will lower bid and offer rates for the franc in order to discourage other dealers from selling francs to Citibank and persuade other dealers to buy francs from Citibank.

-Refer to Table 11.4.Comparing the franc's forward rates against the franc's spot rate,the exchange market's consensus is that over the period of a forward contract,the franc's spot rate will:

Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:

If Canadian speculators believed the Swiss franc was going to appreciate against the U.S.dollar,they would:

The supply schedule of pesos has a negative-sloping region corresponding to the inelastic region on the Mexican demand schedule for foreign currency.

Concerning the foreign exchange market,one can best say that:

Table 11.1.Foreign Exchange Quotations -Consider Table 11.1.If one were to buy pounds for immediate delivery,on Tuesday the dollar cost of each pound would be:

What foreign exchange transactions do banks typically engage in?

Suppose researchers discover that Swiss beer causes cancer when given in large amounts to British mice.This finding would likely result in a (an):

If the exchange rate is $0.01 per yen in New York and $0.015 per yen in Tokyo,an arbitrager could profit by buying yen in Tokyo and simultaneously sell them in New York.

When the dollar depreciates

Concerning the covering of exchange market risks--assuming that a depreciation of the domestic currency is anticipated,one can say that there is an incentive for:

The supply schedule of yen has a positive-sloping region which corresponds to the inelastic region on the Japanese demand schedule for foreign currency.

Which of the following tends to cause the U.S.dollar to appreciate in value?

Table 11.1.Foreign Exchange Quotations -Consider Table 11.1.Concerning the Tuesday quotations: compared to the cost of buying 100 pounds on the spot market,if 100 pounds were bought for future delivery in 180 days the dollar cost of the pounds would be:

The most important (in terms of dollar value)type of foreign exchange transaction by U.S.banks is the:

With arbitrage,a trader attempts to purchase a foreign currency at a low price and,at a later date,resell the currency at a higher price in order to make a profit.