Question 1

In 1973,the Smithsonian Agreement II eliminated fixed exchange rates for the major economies.

Accepted Answer

A) True 
 B)False

Question 2

You can buy or sell the yen spot at ¥102 to the dollar. You can buy or sell the yen one-year forward at ¥104 to the dollar. If U.S. annual interest rates are 4 percent,what must be the approximate one-year Japanese interest rate if interest rate parity holds?

Accepted Answer

A) 6.04 percent 
B) 3.20 percent 
C) 2.75 percent 
D) 4.73 percent 
E) 6.80 percent 
A) 6.04 percent 
B) 3.20 percent 
C) 2.75 percent 
D) 4.73 percent 
E) 6.80 percent

Question 3

You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound one-year forward at $2.01 to the pound. If U.S. annual interest rates are 5 percent,what must be the approximate one-year British interest rate if interest rate parity holds?

Accepted Answer

A) 4.00 percent 
B) 5.25 percent 
C) 2.75 percent 
D) 3.45 percent 
E) 5.65 percent 
A) 4.00 percent 
B) 5.25 percent 
C) 2.75 percent 
D) 3.45 percent 
E) 5.65 percent

Question 4

A drop in value of the dollar hurts U.S. importers and helps U.S. exporters,ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 5

Foreign exchange trading in 2016 averaged about ________ per day.

Accepted Answer

A) $101 million 
B) $5.09 trillion 
C) $101 billion 
D) $1.88 trillion 
E) $101 trillion 
A) $101 million 
B) $5.09 trillion 
C) $101 billion 
D) $1.88 trillion 
E) $101 trillion

Question 6

The largest center for trading in foreign exchange is

Accepted Answer

A) New York. 
B) London. 
C) Tokyo. 
D) Hong Kong. 
E) Geneva. 
A) New York. 
B) London. 
C) Tokyo. 
D) Hong Kong. 
E) Geneva.

Question 7

If the dollar is initially worth 120 yen and then the exchange rate changes so that the dollar is now worth 115 yen,the value of the yen has depreciated.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following conditions may lead to a decline in the value of a country's currency?
I. Low interest rates
II. High inflation
III. Large current account deficit

Accepted Answer

A) I only 
B) I and II only 
C) II and III only 
D) II only 
E) III only 
A) I only 
B) I and II only 
C) II and III only 
D) II only 
E) III only

Question 9

If interest rate parity holds and the annual German nominal interest rate is 3 percent and the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both countries,then inflation in Germany is about ________ than in the United States.

Accepted Answer

A) 1 percent higher 
B) 2 percent higher 
C) 1 percent lower 
D) 4 percent lower 
E) 2 percent lower 
A) 1 percent higher 
B) 2 percent higher 
C) 1 percent lower 
D) 4 percent lower 
E) 2 percent lower

Question 10

Which of the following are likely to lead to an appreciation of the U.S. dollar (ceteris paribus)?
I. Higher real U.S. interest rates
II. Lower U.S. inflation
III. Higher nominal U.S. interest rates

Accepted Answer

A) II and III only 
B) I and III only 
C) I and II only 
D) II only 
E) I,II,and III 
A) II and III only 
B) I and III only 
C) I and II only 
D) II only 
E) I,II,and III

Question 11

The ongoing accumulation of foreign currency reserves by foreign monetary authorities contributed to the dollar's drop in 2006.

Accepted Answer

A) True 
 B)False

Question 12

An investor starts with $1 million and converts it to 0.75 million pounds,which is then invested for one year. In a year the investor has 0.7795 million pounds,which she then converts to dollars at an exchange rate of 0.72 pounds per dollar. The U.S. dollar annual rate of return earned was ________.

Accepted Answer

A) 4.97 percent 
B) 5.27 percent 
C) 6.45 percent 
D) 7.69 percent 
E) 8.26 percent 
A) 4.97 percent 
B) 5.27 percent 
C) 6.45 percent 
D) 7.69 percent 
E) 8.26 percent

Question 13

A U.S. bank has made £50 million loans in Britain and has £40 million in deposits. The bank's currency trading desk has also contracted to buy £20 million and has short positions of £15 million. What is the bank's net exposure? How could they use forward contracts to hedge the exposure? If the bank has exposures in euros and yen,would you recommend they use the forward hedge? Why or why not?

Accepted Answer

Net exposure = (FX assetsi − FX liabilit

Question 14

A negotiated OTC agreement to exchange currencies at a fixed date in the future but at an exchange rate specified today is a

Accepted Answer

A) currency swap agreement. 
B) forward foreign exchange transaction. 
C) currency futures contract. 
D) currency options contract. 
E) spot foreign exchange transaction. 
A) currency swap agreement. 
B) forward foreign exchange transaction. 
C) currency futures contract. 
D) currency options contract. 
E) spot foreign exchange transaction.

Question 15

Why does the size of the U.S. current account deficit put pressure on the value of the dollar to decline? How does the size of the capital account affect that pressure? Explain.

Accepted Answer

A current account deficit means that a c

Question 16

A country with lower interest rates than another country is likely to see its currency appreciate if parity holds.

Accepted Answer

A) True 
 B)False

Question 17

In 2015,the U.S. imported goods and services worth about ________ and exported about ________ leading to a current account ________.

Accepted Answer

A) $3.7 trillion; $3.3 trillion; deficit 
B) $3.2 trillion; $3.4 trillion; surplus 
C) $3.4 trillion; $3.2 trillion; surplus 
D) $3.2 trillion; $3.4 trillion; deficit 
E) $3.0 trillion; $3.0 trillion; balance 
A) $3.7 trillion; $3.3 trillion; deficit 
B) $3.2 trillion; $3.4 trillion; surplus 
C) $3.4 trillion; $3.2 trillion; surplus 
D) $3.2 trillion; $3.4 trillion; deficit 
E) $3.0 trillion; $3.0 trillion; balance

Question 18

New York is the global center of foreign exchange trading with the largest daily volume of currency trading.

Accepted Answer

A) True 
 B)False

Question 19

A U.S. investor has borrowed pounds,converted them to dollars,and invested the dollars in the United States to take advantage of interest rate differentials. To cover the currency risk,the investor should

Accepted Answer

A) sell pounds forward. 
B) buy dollars forward. 
C) buy pounds forward. 
D) sell pounds spot. 
E) None of these choices are correct. 
A) sell pounds forward. 
B) buy dollars forward. 
C) buy pounds forward. 
D) sell pounds spot. 
E) None of these choices are correct.

Question 20

The large U.S. current account deficit implies that

Accepted Answer

A) U.S. interest rates are too high. 
B) the value of the dollar is too weak. 
C) dollar foreign currency reserves at Asian central banks are too low. 
D) the presidential administration desires to improve growth of overseas economies. 
E) the United States must rely on foreigners to be willing to invest in the United States. 
A) U.S. interest rates are too high. 
B) the value of the dollar is too weak. 
C) dollar foreign currency reserves at Asian central banks are too low. 
D) the presidential administration desires to improve growth of overseas economies. 
E) the United States must rely on foreigners to be willing to invest in the United States.

Exam 9: Foreign Exchange Markets

In 1973,the Smithsonian Agreement II eliminated fixed exchange rates for the major economies.

You can buy or sell the yen spot at ¥102 to the dollar. You can buy or sell the yen one-year forward at ¥104 to the dollar. If U.S. annual interest rates are 4 percent,what must be the approximate one-year Japanese interest rate if interest rate parity holds?

You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound one-year forward at $2.01 to the pound. If U.S. annual interest rates are 5 percent,what must be the approximate one-year British interest rate if interest rate parity holds?

A drop in value of the dollar hurts U.S. importers and helps U.S. exporters,ceteris paribus.

Foreign exchange trading in 2016 averaged about ________ per day.

The largest center for trading in foreign exchange is

If the dollar is initially worth 120 yen and then the exchange rate changes so that the dollar is now worth 115 yen,the value of the yen has depreciated.

Which of the following conditions may lead to a decline in the value of a country's currency? I. Low interest rates II. High inflation III. Large current account deficit

If interest rate parity holds and the annual German nominal interest rate is 3 percent and the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both countries,then inflation in Germany is about ________ than in the United States.

Which of the following are likely to lead to an appreciation of the U.S. dollar (ceteris paribus)? I. Higher real U.S. interest rates II. Lower U.S. inflation III. Higher nominal U.S. interest rates

The ongoing accumulation of foreign currency reserves by foreign monetary authorities contributed to the dollar's drop in 2006.

A negotiated OTC agreement to exchange currencies at a fixed date in the future but at an exchange rate specified today is a

Why does the size of the U.S. current account deficit put pressure on the value of the dollar to decline? How does the size of the capital account affect that pressure? Explain.

A country with lower interest rates than another country is likely to see its currency appreciate if parity holds.

In 2015,the U.S. imported goods and services worth about ________ and exported about ________ leading to a current account ________.

New York is the global center of foreign exchange trading with the largest daily volume of currency trading.

A U.S. investor has borrowed pounds,converted them to dollars,and invested the dollars in the United States to take advantage of interest rate differentials. To cover the currency risk,the investor should

The large U.S. current account deficit implies that

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

In 2015,the U.S. imported goods and services worth about and exported about leading to a current account .