Exam 11: Foreign Exchange

Where are foreign currency options traded?

Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price,within a few days to a couple of years?

The supply of francs is derived from the desire of the Swiss to purchase German goods,make investments in Germany,repay debts to German lenders,and extend transfer payments to German residents.

An appreciation in the value of the U.S.dollar against the British pound would tend to:

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

Figure 11.1.Supply and Demand Schedules of Francs -Refer to Figure 11.1.Suppose the exchange rate is $.70 per franc.Free-market forces would lead to a (an)____ of the dollar against the franc and a (an)____ in U.S.international competitiveness.

If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days,you could remove the risk of loss due to the appreciation of the pound by:

As the dollar depreciates against the peso,U.S.residents tend to import more Mexican goods and thus demand more pesos.

If Chase Manhattan Bank quotes bid and offer rates for the Swiss franc at $.5250/$.5260,the bank would realize profits of $1,000 on the purchase and sale of 1 million francs.

Figure 11.3 The Market for the Euro -Refer to Figure 11.3.If the supply curve is represented by S₀,the equilibrium exchange rate is

A depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is:

If the Swiss demand for dollars is elastic,a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Table 11.1.Foreign Exchange Quotations -Consider Table 11.1.Comparing Tuesday to the previous Monday,by Tuesday the dollar had:

A depreciation of the dollar refers to:

A currency speculator's goal is to buy a currency at a low price and immediately resell it at a higher price,thus realizing a riskless profit.

Swap transactions among commercial banks involve the conversion of one currency to another at one point with an agreement to reconvert it back into the original currency at some point in the future.

A U.S.investor's extra rate of return on an investment in France,as compared to the United States,equals the interest-rate differential adjusted for any change in the dollar/franc exchange rate.

A major difference between the spot market and the forward market is that the spot market deals with:

If it takes $0.18544 to purchase 1 French franc,it takes 5.3926 francs to purchase $1.

The "spread" is a bank's profit margin on foreign exchange trading and equals the difference between the bid rate and the offer rate.