Finance quiz ch 17
If the foreign exchange rate is the price in foreign currency for a dollar, then the exchange rate quota is called
an indirect quote
The bid quote represents the rate at which
the dealer will buy foreign currency from you.
Venkat Ram purchased a pair of dress shoes in Italy for €131.25. If the spot exchange rate is $1.5621/€, what is the dollar cost of the shoes? (Round your answer to two decimal places.)
$205.03 ---- Calculation is = value of item X currency exchange rate 131.25 x $1.5621 = $205.03
Which of the following is correct? A) Forward contracts are used to hedge the risk of a change in the exchange rate. B) Forward contracts do not guarantee the buy or sell price of a currency C) The forward rate is established at the end of the forward contract. D) None of the above are correct.
A) Forward contracts are used to hedge the risk of a change in the exchange rate.
The ask quote represents the rate at which: A) the dealer will sell foreign currency to you. B) the dealer will sell domestic currency to you. C) the dealer will buy domestic currency from the exchange. D) the dealer will buy foreign currency from you.
A. the dealer will sell foreign currency to you.
According to the purchasing power parity theory, A) The price of the same basket of products in two countries will never be the same if measured in a common currency B) The price of the same basket of products in two countries will be the same only under special circumstances. C) The prices of the same basket of products in two countries will be the same if measured in a common currency D) None of the above are correct
C) The prices of the same basket of products in two countries will be the same if measured in a common currency
Economic benefits provided by the foreign exchange markets include: A) A mechanism to transfer purchasing power from individuals who deal in one currency to people who deal in a different currency. B) A way for corporations to pass the risk associated with foreign exchange price fluctuations to professional risk-takers. C) A channel for importers and exporters to acquire credit for international business transactions. D) All of the above
D) All of the above
The difference between the forward rate and the spot rate is called
a forward premium or forward discount
Suppose a Tata Nano car is priced at Rs.100,000 in New Delhi and $3,129 in New York. In which place is the car more expensive if the spot rate is $0.0242/Rs.?
in New York
What is arbitrage?
simultaneous buying and selling currency or securities in order to male a riskless profit because of price discrepancies