Question 1

What are the major differences between the interbank foreign exchange market and the foreign currency exchanges?

Accepted Answer

In the interbank market,the deals are ne

Question 2

The value of the British pound changed from $1.23 to $1.32. We can say that the pound has ________ and the dollar has ________.

Accepted Answer

A) depreciated; appreciated 
B) appreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
E) None of these choices are correct. 
A) depreciated; appreciated 
B) appreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
E) None of these choices are correct.

Question 3

A British bank has borrowed dollars in the United States,but is now concerned about its currency risk. What alternatives does it have to limit its risk? Be specific.

Accepted Answer

The bank could buy dollars (sell pounds)

Question 4

At the beginning of the year the exchange rate between the Brazilian real and the U.S. dollar was 2.2 reals per dollar. Over the year,Brazilian inflation was 12 percent and U.S. inflation was 4 percent. If purchasing power parity holds,at year-end the exchange rate should be approximately ________ dollars per real.

Accepted Answer

A) 2.3913 
B) 0.4895 
C) 2.8498 
D) 0.4182 
E) 0.3440 
A) 2.3913 
B) 0.4895 
C) 2.8498 
D) 0.4182 
E) 0.3440

Question 5

During much of the 1800s,developed nations employed what came to be known as the Bretton Woods international monetary system to manage exchange rates.

Accepted Answer

A) True 
 B)False

Question 6

The value of the British pound changed from $1.40 to $1.15. We can say that the pound has ________ and the dollar has ________.

Accepted Answer

A) depreciated; appreciated 
B) appreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
E) None of these choices are correct. 
A) depreciated; appreciated 
B) appreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
E) None of these choices are correct.

Question 7

The dollar's value increased when the Fed cut interest rates in late 2007.

Accepted Answer

A) True 
 B)False

Question 8

The concept underlying purchasing power parity is the

Accepted Answer

A) Fisher effect. 
B) Bretton Woods Agreement. 
C) law of one price. 
D) Big Mac Index. 
E) balance of payments concept. 
A) Fisher effect. 
B) Bretton Woods Agreement. 
C) law of one price. 
D) Big Mac Index. 
E) balance of payments concept.

Question 9

An investor starts with €1 million and converts it to £694,500,which is then invested for one year. In a year the investor has £736,170,which she then converts back to euros at an exchange rate of 0.68 pounds per euro. The annual euro rate of return earned was ________.

Accepted Answer

A) 7.55 percent 
B) 6.00 percent 
C) 7.45 percent 
D) 8.13 percent 
E) 8.26 percent 
A) 7.55 percent 
B) 6.00 percent 
C) 7.45 percent 
D) 8.13 percent 
E) 8.26 percent

Question 10

A European investor can earn a 4.75 percent annual interest rate in Europe or 2.75 percent per year in the United States. If the spot exchange rate is $1.58 per euro,at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments?

Accepted Answer

A) $1.5484 
B) $1.6108 
C) $1.5335 
D) $1.5498 
E) $1.5977 
A) $1.5484 
B) $1.6108 
C) $1.5335 
D) $1.5498 
E) $1.5977

Question 11

The value of the Euro changed from $1.20 to $1.14. We can say that the dollar has ________ and the euro has ________.

Accepted Answer

A) depreciated; appreciated 
B) appreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
E) None of these choices are correct. 
A) depreciated; appreciated 
B) appreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
E) None of these choices are correct.

Question 12

A current account deficit implies that

Accepted Answer

A) more goods and services are exported than are imported. 
B) more goods and services are imported than are exported. 
C) there is excessive consumption of foreign financial assets. 
D) the value of the dollar will rise. 
E) the country is going bankrupt. 
A) more goods and services are exported than are imported. 
B) more goods and services are imported than are exported. 
C) there is excessive consumption of foreign financial assets. 
D) the value of the dollar will rise. 
E) the country is going bankrupt.

Question 13

If the euro per yen ratio falls,the value of the yen has risen.

Accepted Answer

A) True 
 B)False

Question 14

The value of the Euro changed from $1.15 to $1.25. We can say that the dollar has ________ and the euro has ________.

Accepted Answer

A) depreciated; appreciated 
B) appreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
E) None of these choices are correct. 
A) depreciated; appreciated 
B) appreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated 
E) None of these choices are correct.

Question 15

A U.S. bank has £120 million in loans to corporate customers and has £70 million in deposits it owes to customers with the same maturity. The bank has also sold £20 million pounds forward. The bank's net exposure is

Accepted Answer

A) £210 million. 
B) £30 million. 
C) £70 million. 
D) £170 million. 
E) £190 million. 
A) £210 million. 
B) £30 million. 
C) £70 million. 
D) £170 million. 
E) £190 million.

Question 16

The spot rate for the Argentine peso is $0.3600 per peso. Over the year,inflation in Argentina is 10 percent and U.S. inflation is 4 percent. If purchasing power parity holds,at year-end the exchange rate should be approximately ________ dollars per real.

Accepted Answer

A) 0.2987 
B) 0.3614 
C) 0.2875 
D) 0.3384 
E) 0.3015 
A) 0.2987 
B) 0.3614 
C) 0.2875 
D) 0.3384 
E) 0.3015

Question 17

In 1971,the Bretton Woods Agreement established that,for the first time,currency values would be fixed against one another within narrow bands.

Accepted Answer

A) True 
 B)False

Question 18

A Japanese investor can earn a 1 percent annual interest rate in Japan or about 3.5 percent per year in the United States. If the spot exchange rate is 101 yen to the dollar,at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments?

Accepted Answer

A) ¥100.58 
B) ¥98.56 
C) ¥101.68 
D) ¥97.42 
E) ¥103.50 
A) ¥100.58 
B) ¥98.56 
C) ¥101.68 
D) ¥97.42 
E) ¥103.50

Question 19

A U.S. firm has £50 million in assets in Britain that they need to repatriate in six months. They could hedge the exchange rate risk by

Accepted Answer

A) buying pounds forward. 
B) selling pounds forward. 
C) borrowing pounds. 
D) both selling pounds forward and borrowing pounds. 
E) both buying pounds forward and borrowing pounds. 
A) buying pounds forward. 
B) selling pounds forward. 
C) borrowing pounds. 
D) both selling pounds forward and borrowing pounds. 
E) both buying pounds forward and borrowing pounds.

Question 20

The ________ measures the net flows of imports and exports of goods,services,income payments,and unilateral transfers.

Accepted Answer

A) current account 
B) capital account 
C) change in official reserves 
D) statistical discrepancy 
E) basic balance account 
A) current account 
B) capital account 
C) change in official reserves 
D) statistical discrepancy 
E) basic balance account

Exam 9: Foreign Exchange Markets

What are the major differences between the interbank foreign exchange market and the foreign currency exchanges?

The value of the British pound changed from $1.23 to $1.32. We can say that the pound has ________ and the dollar has ________.

A British bank has borrowed dollars in the United States,but is now concerned about its currency risk. What alternatives does it have to limit its risk? Be specific.

During much of the 1800s,developed nations employed what came to be known as the Bretton Woods international monetary system to manage exchange rates.

The value of the British pound changed from $1.40 to $1.15. We can say that the pound has ________ and the dollar has ________.

The dollar's value increased when the Fed cut interest rates in late 2007.

The concept underlying purchasing power parity is the

An investor starts with €1 million and converts it to £694,500,which is then invested for one year. In a year the investor has £736,170,which she then converts back to euros at an exchange rate of 0.68 pounds per euro. The annual euro rate of return earned was ________.

A European investor can earn a 4.75 percent annual interest rate in Europe or 2.75 percent per year in the United States. If the spot exchange rate is $1.58 per euro,at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments?

The value of the Euro changed from $1.20 to $1.14. We can say that the dollar has ________ and the euro has ________.

A current account deficit implies that

If the euro per yen ratio falls,the value of the yen has risen.

The value of the Euro changed from $1.15 to $1.25. We can say that the dollar has ________ and the euro has ________.

A U.S. bank has £120 million in loans to corporate customers and has £70 million in deposits it owes to customers with the same maturity. The bank has also sold £20 million pounds forward. The bank's net exposure is

The spot rate for the Argentine peso is $0.3600 per peso. Over the year,inflation in Argentina is 10 percent and U.S. inflation is 4 percent. If purchasing power parity holds,at year-end the exchange rate should be approximately ________ dollars per real.

In 1971,the Bretton Woods Agreement established that,for the first time,currency values would be fixed against one another within narrow bands.

A Japanese investor can earn a 1 percent annual interest rate in Japan or about 3.5 percent per year in the United States. If the spot exchange rate is 101 yen to the dollar,at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments?

A U.S. firm has £50 million in assets in Britain that they need to repatriate in six months. They could hedge the exchange rate risk by

The ________ measures the net flows of imports and exports of goods,services,income payments,and unilateral transfers.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

The value of the British pound changed from $1.23 to $1.32. We can say that the pound has and the dollar has .

The value of the British pound changed from $1.40 to $1.15. We can say that the pound has and the dollar has .

The value of the Euro changed from $1.20 to $1.14. We can say that the dollar has and the euro has .

The value of the Euro changed from $1.15 to $1.25. We can say that the dollar has and the euro has .