Chap 10

_____ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. Question 12 options: Countertrade Carry trade Dumping Capital flight

Countertrade

________ arises from volatile changes in exchange rates. Question 1 options: Translational exposure Foreign exchange risk Economic exposure Transactional exposure

Foreign exchange risk

_____ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. Question 10 options: Lead strategy Fundamental analysis Lag strategy Technical analysis

Fundamental analysis

_____ is one in which prices do not reflect all available information. Question 9 options: Inefficient market Speculative market Efficient market Externally convertible market

Inefficient market

A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct? Question 3 options: The United States offers a better deal. The deal is the same in both countries. Britain offers a better deal. A trader can make money by buying the shoes in Britain and selling in the United States at $50

The United States offers a better deal

A currency is said to be freely convertible when Question 11 options: its exchange rate with respect to other currencies is decided by the central bank of the country. residents alone are allowed to convert it into a foreign currency without any limitations. neither residents nor nonresidents are allowed to convert it into a foreign currency. both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it.

both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it.

What are the two main functions of the foreign exchange market? Question 2 options: trading foreign company equities and converting currency reducing currency volatility and setting interest rates insuring companies against interest rate risk and enabling imports and exports converting currency and providing some insurance against foreign exchange risk

converting currency and providing some insurance against foreign exchange risk

A lag strategy involves Question 14 options: attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. delaying collection of foreign currency receivables if that currency is expected to appreciate. paying foreign currency payables before they are due when a currency is expected to appreciate. delaying collection of foreign currency receivables if that currency is expected to depreciate

delaying collection of foreign currency receivables if that currency is expected to appreciate.

What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs? Question 13 options: translation exposure economic exposure transaction exposure trade exposure

economic exposure

The _____ is a global network of banks, brokers, and foreign exchange dealers connected by electronic communications systems. Question 6 options: foreign exchange market united global database global marketplace foreign market database

foreign exchange market

When two parties agree to exchange currency and execute the deal at some specific time in the future, a _____ occurs. Question 7 options: currency swap forward exchange hedging spot exchange

forward exchange

Restrictions on external convertibility can Question 15 options: hamper foreign companies wishing to do business in that country. allow domestic companies to freely invest abroad. limit the amount of product a foreign company can produce in that country. limit domestic companies' ability to invest abroad.

limit domestic companies' ability to invest abroad.

The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will Question 8 options: export more goods to other countries. see depreciation in its currency exchange rate. import more goods from other countries. see an appreciation in its currency exchange rate

see depreciation in its currency exchange rate.

When two parties agree to exchange currency and execute the deal immediately, the transaction is a Question 5 options: futures exchange. carry trade. spot exchange. forward exchange

spot exchange.

When a tourist goes to a bank in a foreign country to convert money into the local currency, the exchange rate used is the Question 4 options: currency swap rate. forward rate. carry trade. spot rate.

spot rate.