Exam 11: Foreign Exchange

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:

The offer rate

If the Swiss demand for dollars is elastic,an appreciation 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 gives the exchange rate quotations for the U.S. dollar and the British pound. 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 11.2. Market for Francs -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:

The bid rate refers to the price at which a bank is willing to sell a unit of foreign currency; the offer rate is the price at which a bank is willing to buy a unit of foreign currency.

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:

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.

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

The balance on merchandise trade:

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.

When the dollar depreciates

The supply of foreign currency may be:

The trade-weighted dollar is the weighted average of the exchange rates between the dollar and the most important industrial-country trading partners of the United States.

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:

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

Suppose the exchange value of the British pound is $2 per pound while the exchange value of the Swiss franc is 50 cents per pound.The cross exchange rate between the pound and the franc is:

During the era of dollar appreciation,from 1981 to 1985,a main reason why the dollar did not fall in value was:

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.

In the interbank market for foreign exchange,the ____ refers to the difference between the offer rate and the bid rate.