Exam 11: Foreign Exchange

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

Assume that Boeing anticipates receiving 20 million yen in 3 months from exports of jumbo jets to a Japanese airline.The firm could hedge against the risk of a depreciation of the dollar against the yen by contracting to sell its expected yen proceeds for dollars in the forward market at today's forward rate.

A foreign currency option is an agreement between a holder (corporation)and a writer (commercial bank)giving the holder the right to buy or sell a certain amount of foreign currency at any time through some specified date.

Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States.The exchange rate between the franc and the dollar is:

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:

If the trade-weighted dollar moves from an index value to 100 to 110,the dollar depreciates by 10 percent against the trade-weighted averages of the exchange rates of the major trading partners of the United States.

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

The demand schedule for Swiss francs is always downsloping while the supply schedule of francs is always upsloping.

In a supply-and-demand diagram for Japanese yen,with the exchange rate in dollars per yen on the vertical axis,the demand schedule for yen is drawn sloping:

In the early 1980s,the Federal Reserve pursued a tight monetary policy.All else being equal,the impact of that policy was to ____ interest rates in the United States relative to those in Europe and cause the dollar to ____ against European currencies.

Refer to Exhibit 11.1.If the price of the 6-month forward pound were to ____,U.S.investors would no longer earn an extra return by shifting funds to the United Kingdom.

Most foreign exchange trading is carried out in the forward market.

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.

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.

Suppose that real incomes increase more rapidly in the United States than in Mexico.In the United States,this situation would likely result in a (an):

Given the foreign currency market for the Swiss franc,the supply of francs slopes upward,because as the dollar price of the franc rises:

A commercial bank profits from foreign-exchange trading when its bid rate exceeds its offer rate.

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.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:

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.

When short-term interest rates become lower in Tokyo than in New York,interest arbitrage operations will most likely result in a: