Question 1

Translation exposure can be reduced by the use of a money-market hedge or a forward-market hedge.

Accepted Answer

A) True 
 B)False

Question 2

Buying and selling in more than one market to make a riskless profit is called

Accepted Answer

A)  profit-maximization. 
B)  arbitrage. 
C)  international trading. 
D)  Cannot be determined from the above information.

Question 3

The forward exchange rate quoted today should be equal to the spot rate in the future.

Accepted Answer

A) True 
 B)False

Question 4

The difference between the asked price and the bid price is known as the spread.

Accepted Answer

A) True 
 B)False

Question 5

In an international trade contract involving one buyer and one seller,both parties may be exposed to exchange rate risk if the contract is denominated in a third currency.

Accepted Answer

A) True 
 B)False

Question 6

The forward-spot differential is the difference between the forward rate and the expected future spot rate.

Accepted Answer

A) True 
 B)False

Question 7

A foreign currency option differs from a forward exchange contract is all of the following ways except:

Accepted Answer

A)  it is used to hedge for foreign exchange risk. 
B)  it permits delivery of the currency anytime before maturity. 
C)  it is traded in standard amounts. 
D)  it is traded with standard maturity dates.

Question 8

Due to the dominance of Chinese companies in international trade,the Chinese yuan is the most frequently traded currency.

Accepted Answer

A) True 
 B)False

Question 9

The efficiency of foreign currency markets is assured,in large measure,by the process of arbitrageurs.

Accepted Answer

A) True 
 B)False

Question 10

A cross rate is the computation of an exchange rate for a currency from the exchange rates of two other currencies.

Accepted Answer

A) True 
 B)False

Question 11

Triangular arbitrage eliminates exchange rate differentials across three markets for three currencies.

Accepted Answer

A) True 
 B)False

Question 12

You purchased 500,000 Swiss Francs in London at an exchange rate of 0.6705 to the dollar and simultaneously sold the francs in New York at an exchange rate of 0.6692 to the dollar.What is the name for such a transaction?

Accepted Answer

A)  trend trading 
B)  arbitrage 
C)  currency swapping 
D)  exchange rate hedging

Question 13

The bid rate is the rate at which the bank buys the foreign currency from the customer by paying in home currency.

Accepted Answer

A) True 
 B)False

Question 14

In order to profit from an expected near-term increase in the relative value of the British pound versus the U.S.dollar,an investor would be wise to maintain a short position in pounds,then sell when the pound rises in relative value.

Accepted Answer

A) True 
 B)False

Question 15

Forward contracts benefit only the customer due to a reduction in uncertainty.

Accepted Answer

A) True 
 B)False

Question 16

Prior to 1973 the exchange rates between the major currencies of the world were

Accepted Answer

A)  on a floating exchange rate system. 
B)  on an arbitrage exchange rate system. 
C)  on a fixed exchange rate system. 
D)  on a spot exchange rate system.

Question 17

Which of the following is true?

Accepted Answer

A)  The forward rate is the same as the spot rate that will prevail in the future. 
B)  The future spot rate is equal to the forward rate less the current spot rate. 
C)  The actual spot rate that will prevail in the future is not known today. 
D)  The future spot rate is the current spot rate increased by the inflation rate.

Question 18

Interest rate parity theory states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.

Accepted Answer

A) True 
 B)False

Question 19

The direct quote in New York is .015 dollar per Pakistani Rupee.The direct quote in Pakistan is 60 rupees per dollar.This imbalance in rates can be correct by arbitrage.A trader will ________ rupees in New York and ________ rupees in Pakistan,causing the direct quote in New York to ________.

Accepted Answer

A)  buy, sell, increase 
B)  buy, sell, decrease 
C)  sell, buy, decrease 
D)  sell, buy, increase

Question 20

Why do currency exchange rates throughout the world trade within a very narrow range on any given day?

Accepted Answer

A)  because of purchasing power parity 
B)  because of the international translation effect 
C)  because of arbitrage 
D)  because of the law of one price

Exam 17: International Business Finance

Translation exposure can be reduced by the use of a money-market hedge or a forward-market hedge.

Buying and selling in more than one market to make a riskless profit is called

The forward exchange rate quoted today should be equal to the spot rate in the future.

The difference between the asked price and the bid price is known as the spread.

In an international trade contract involving one buyer and one seller,both parties may be exposed to exchange rate risk if the contract is denominated in a third currency.

The forward-spot differential is the difference between the forward rate and the expected future spot rate.

A foreign currency option differs from a forward exchange contract is all of the following ways except:

Due to the dominance of Chinese companies in international trade,the Chinese yuan is the most frequently traded currency.

The efficiency of foreign currency markets is assured,in large measure,by the process of arbitrageurs.

A cross rate is the computation of an exchange rate for a currency from the exchange rates of two other currencies.

Triangular arbitrage eliminates exchange rate differentials across three markets for three currencies.

You purchased 500,000 Swiss Francs in London at an exchange rate of 0.6705 to the dollar and simultaneously sold the francs in New York at an exchange rate of 0.6692 to the dollar.What is the name for such a transaction?

The bid rate is the rate at which the bank buys the foreign currency from the customer by paying in home currency.

In order to profit from an expected near-term increase in the relative value of the British pound versus the U.S.dollar,an investor would be wise to maintain a short position in pounds,then sell when the pound rises in relative value.

Forward contracts benefit only the customer due to a reduction in uncertainty.

Prior to 1973 the exchange rates between the major currencies of the world were

Which of the following is true?

Interest rate parity theory states that the forward premium or discount should be equal and opposite in sign to the difference in the national interest rates for securities of the same maturity.

The direct quote in New York is .015 dollar per Pakistani Rupee.The direct quote in Pakistan is 60 rupees per dollar.This imbalance in rates can be correct by arbitrage.A trader will rupees in New York and rupees in Pakistan,causing the direct quote in New York to .

Why do currency exchange rates throughout the world trade within a very narrow range on any given day?