ch 9 IB
B
A ________ currency is traded freely in the foreign exchange market. A) barter B) convertible C) vehicular D) soft
B
A currency used as an intermediary to convert funds between two other currencies is called a(n) ________. A) spot currency B) vehicle currency C) forward currency D) interbank currency
D
A loan in which the borrower promises to repay the borrowed amount plus a predetermined rate of interest is called ________. A) equity B) exchange rate C) stock D) debt
D
ABC Software is a producer of educational software for small children. The company has operations in Switzerland and would like to expand its foreign production with a new facility in China. The company's financial advisors recommend that ABC Software conduct most of its business in a vehicle currency. ABC Software has learned that all of the following are true of vehicle currencies EXCEPT ________. A) a vehicle currency is a currency used as an intermediary to convert funds between two other currencies B) the U.S. dollar, Japanese yen, British pound, and European Union euro are all examples of vehicle currencies C) the U.S. dollar became a vehicle currency after World War II when all of the world's major currencies were tied indirectly to the dollar because it was the most stable currency D) the Chinese won is expected to become a vehicle currency in the near future as China's position in world trade continues to grow
true
An excess money supply creates a borrowers market, forcing down interest rates and the cost of borrowing. T or F?
D
An exchange rate calculated using two other exchange rates is called a(n) ________. A) arbitrage rate B) hedge rate C) forward rate D) cross rate
A
An exchange rate of ¥117.87/$ indicates ________. A) that 117.87 yen buys one dollar B) that 117.87 dollars buys one yen C) a direct quote on the dollar D) an indirect quote on the yen
A
An expanded money supply ___________. A) reduces the cost of borrowing B) makes it difficult for financial institutions to lend money C) increases the cost of borrowing D) diminishes the entrepreneurial initiatives of a country
D
An offshore financial center is usually characterized by each of the following EXCEPT ______________. A) very few regulations B) economic and political stability C) excellent telecommunications D) high taxes
A
Company debt normally takes the form of ________. A) bonds B) equity C) stocks D) bank loans
D
Currency arbitrage is ________________. A) the practice of insuring against potential losses that result from adverse changes in exchange rates B) the profit-motivated purchase and sale of interest-paying securities denominated in different currencies C) the purchase or sale of a currency with the expectation that its value will change and generate a profit D) the instantaneous purchase and sale of a currency in different markets for profit
D
Deposits to the Eurocurrency market originate from all of these EXCEPT ________. A) governments with excess funds generated by a prolonged trade surplus B) commercial banks with large deposits of excess currency C) international companies with large amounts of excess cash D) nongovernmental organizations seeking to avoid taxes
D
Eurobonds account for ________ percent of all international bonds. A) 20 to 25 B) 30 to 40 C) 50 to 65 D) 75 to 80
C
Eurobonds are popular because ________. A) they are less risky than traditional bonds B) they are always denominated in euros C) of the absence of government regulation D) European companies are considered very stable
B
Factors responsible for growth in the international equity market include all the following EXCEPT ________. A) advent of cybermarkets B) spread of countertrade C) economic growth in developing countries D) activities of investment banks
A
Foreign bonds account for about ________ percent of all international bonds. A) 20 to 25 B) 25 to 40 C) 50 to 70 D) more than 90
D
Foreign bonds issued and traded in Asia outside Japan are called ________. A) bulldog bonds B) yankee bonds C) samurai bonds D) dragon bonds
C
Foreign bonds issued in Japan are called ________. A) bulldog bonds B) yankee bonds C) samurai bonds D) dragon bonds
A
Foreign bonds issued in the United Kingdom are called ________. A) bulldog bonds B) yankee bonds C) samurai bonds D) dragon bonds
B
Foreign bonds issued in the United States are called ________. A) bulldog bonds B) yankee bonds C) samurai bonds D) dragon bonds
True
Forward rates represent the expectations of currency traders and bankers regarding a currency's future spot rate. T or F?
true
Forward rates represent the expectations of currency traders and bankers regarding a currency's future spot rate. T or F?
B
If ABC Software simultaneously purchases and sells foreign exchange for two different dates, it is doing which of the following? A) Increasing its foreign exchange rate risk B) Conducting a currency swap C) Entering an arbitrage situation D) Buying and selling at the spot rate
D
If a currency's forward rate is higher than its spot rate, the currency is trading at a ________. A) discount B) swap rate C) derivative rate D) premium
False, premium
If a currency's forward rate is higher than its spot rate, the currency is trading at a discount. T or F?
B
If the spot rate for the British pound (GBP) is $1.6950/GBP and the 30-day forward rate is $1.6921/GBP, then the pound is trading at a ________ in the 30-day market. A) premium B) discount C) swap D) spot
b
If the spot rate for the British pound (GBP) is $1.6950/GBP and the 30-day forward rate is $1.6921/GBP, then the pound is trading at a ________ in the 30-day market. A) premium B) discount C) swap D) spot
A
In a quoted exchange rate of $1.69/British pound, the British pound is called the ________. A) base currency B) forward currency C) cross currency D) quoted currency
D
In a quoted exchange rate, the currency with which another currency is to be purchased is called the ________. A) base currency B) forward currency C) cross currency D) quoted currency
True
In any exchange rate, the quoted currency is always the numerator and the base currency is always the denominator. T or F?
C
In designating any exchange rate, the quoted currency is always the ________. A) fraction B) denominator C) numerator D) indirect quote
true
International transactions between two currencies other than the U.S. dollar often use the dollar as a vehicle currency. T or F?
D
Investors use the foreign exchange market for each of the following EXCEPT ________. A) currency hedging B) currency speculation C) currency arbitrage D) currency prospecting
B
Microcredit loans in developing countries typically average ________. A) more than $100 B) about $350 C) more than $500 D) less than $500
A
Rates that the world's largest banks charge one another for loans are called ________. A) interbank interest rates B) standardized interest rates C) exchange rates D) inflation hedge rates
A
Shares of ownership in a company's assets that give shareholders a claim on the company's future cash flows are called ________. A) stocks B) bonds C) debt D) eurocurrencies
C
The bid-ask spread in the foreign exchange market is the ________. A) price at which a bank will buy a currency B) price of currency in the foreign exchange market C) difference between the bid and ask quotes for a currency D) price a bank will pay for a currency
D
The ease with which bondholders and shareholders may convert their investments into cash is called ________. A) barter B) hedging C) arbitrage D) liquidity
A
The exchange rate at which two parties agree to exchange currencies on a specified future date is called a(n) ________. A) forward rate B) bid-ask rate C) spot rate D) arbitrage rate
B
The exchange rate between the euro (€) and the dollar is €0.8461/$. Which of the following is the correct direct quote on the dollar? A) $2.20/€ B) $1.1819/€ C) $5.50/€ D) $0.8461/€
C
The international bond market consists of all bonds sold by issuing companies, governments, or other organizations ________. A) within their own countries B) to London banks C) outside their own countries D) to developing nations only
C
The international capital market's rapid growth rate is traced to all these EXCEPT ________. A) innovative financial instruments B) information technology C) foreign exchange rates D) deregulation
A
The international financial market is composed of two interrelated systems called the ________ and the ________. A) international capital market; foreign exchange market B) international capital market; foreign goods market C) foreign goods market; international services market D) foreign goods market; foreign exchange market
C
The market consisting of all the world's currencies that are banked outside their countries of origin is called the ________. A) foreign exchange market B) interbank trading market C) Eurocurrency market D) offshore financial center
D
The market in which currencies are bought and sold and their prices determined is called the ________. A) Eurocurrency market B) international capital market C) international bond market D) foreign exchange market
A
The most commonly quoted rate in the Eurocurrency market is the ________. A) London Interbank Offer Rate (LIBOR) B) London Interbank Bid Rate (LIBID) C) spot rate D) cross rate
A
The practice of insuring against potential losses that result from adverse changes in exchange rates is called currency ________. A) hedging B) arbitrage C) speculation D) conversion
C
The profit-motivated purchase and sale of interest-paying securities denominated in different currencies is called ________. A) currency arbitrage B) currency hedging C) interest arbitrage D) interest hedging
C
The purchase or sale of a currency with the expectation that its value will change and generate a profit is called ________. A) currency hedging B) currency arbitrage C) currency speculation D) currency conversion
A
The rate at which one currency is exchanged for another is called the ________. A) exchange rate B) LIBOR C) LICU rate D) Federal funds rate
B
The unbundling and repackaging of hard-to-trade financial assets into more liquid, negotiable, and marketable financial instruments is called ________. A) market liquidity B) securitization C) bartering D) arbitrage
C
The world's largest banks exchange currencies at spot and forward rates in the ________. A) securities exchanges B) Eurocurrency market C) interbank market D) over-the-counter market
D
The world's three most important financial centers are ________. A) Bonn, Zurich, and New York B) London, Amsterdam, and Sydney C) New York, Tokyo, and Bombay D) Tokyo, London, and New York
D
Typical buyers of bonds include all of the following EXCEPT ________. A) medium- to large-sized banks B) pension funds C) mutual funds D) governments in need of funds
D
When doing business with former communist countries, Trader's Paradise insists on getting paid in hard currency. This means they are paid in which of the following? A) The former communist country's currency B) Coins but not bills C) Bartered goods D) A convertible currency
A
Which of the following denotes a stock market with no central geographic location? A) Cybermarket B) Foreign exchange market C) Capital market D) Bond market
D
Which of the following is LEAST likely to affect the exchange rate between two currencies? A) The size of the transaction B) The trader conducting the transaction C) General economic conditions D) The recipient of the converted currency
D
Which of the following is NOT a purpose of the international capital market? A) Reduces risk for lenders B) Expands the money supply for borrowers C) Reduces the cost of money to borrowers D) Preserves hard currencies to finance trade deficits
C
Which of the following is a system that allocates financial resources in the form of debt and equity according to their most efficient uses? A) International equity market B) Foreign currency market C) Capital market D) Eurocurrency market
B
Which of the following is an exchange rate that requires delivery of the traded currency within two business days? A) Derivative rate B) Spot rate C) Discount rate D) Forward rate
A
Which of these is NOT a component of the international capital market? A) Foreign exchange market B) International equity market C) Eurocurrency market D) International bond market
A
Which of these is a country or territory whose financial sector features very few regulations and few, if any, taxes? A) Offshore financial center B) Currency market center C) Capital market center D) World trade center
B
Which of these is a debt instrument specifying the timing of principal and interest payments? A) Stock B) Bond C) Eurocurrency D) Equity
C
Which of these is the simultaneous purchase and sale of foreign exchange for two different dates? A) Forward swap B) Bid-ask swap C) Currency swap D) Security swap
B
________________ is the instantaneous purchase and sale of a currency in different markets for profit. A) Currency hedging B) Currency arbitrage C) Currency speculation D) Currency conversion
