Exam 11: Foreign Exchange

Foreign-exchange brokers help commercial banks carry out foreign exchange trading and maintain desired balances of foreign exchange.

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.

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 buy pounds for immediate delivery,on Tuesday the dollar cost of each pound would be:

Figure 11.2. Market for Francs -Refer to Figure 11.2.A shift in the demand for francs from D? to D?,or a shift in the supply of francs from S? to S?,would result in a (an):

If it takes $1.5515 to buy 1 pound and $0.6845 to buy 1 franc,it takes 2.27 francs to buy 1 pound.

Where are foreign currency options traded?

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

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

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

The demand for foreign exchange is derived from credit transactions on the balance of payments.

If it takes 113.28 yen to buy $1,it takes $.009624 to buy 1 yen.

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.Comparing Tuesday to the previous Monday,by Tuesday the dollar had:

The most important (in terms of dollar value)type of foreign exchange transaction by U.S.banks is the:

Arbitrage results in a riskless profit since a trader purchases a currency at a low price and simultaneously resells it at a higher price.

Refer to Exhibit 11.1.By investing in U.K.treasury bills rather than U.S.treasury bills,and not covering exchange rate risk,U.S.investors earn an extra return of:

Table 11.4. Forward Exchange Rates -Refer to Table 11.4.On Wednesday,the 180-day forward franc was selling at a:

The U.S.demand for pounds is derived from U.S.exports to the United Kingdom,U.K.investments in the United States,and U.K.tourist expenditures in the United States.

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

Figure 11.1 illustrates the supply and demand schedules for the Swiss franc. Assume that exchange rates are flexible. Figure 11.1. Supply and Demand Schedules of Francs -Refer to Figure 11.1.At the equilibrium exchange rate of ____ per franc,____ francs will be purchased at a total dollar cost of ____.

Table 11.3. Key Currency Cross Rates -Referring to Table 11.3,the cross exchange rate between the euro and Swiss franc is approximately: