Chapter 9 Recharge

Foreign exchange transactions are mainly ______ transactions - exchange based - highly profitable - over the counter (OTC) - high risk

Over the counter (OTC)

A flaw of the Bretton Woods Agreement is that some currencies within the system became ________ and other currencies became ________ at the fixed exchange rates - Overvalued; undervalued - Strong; even stronger - Weak; even weaker - Appreciated; depreciated

Overvalued; undervalued

The theory that describes how the exchange rate between two countries will adjust due to differences in inflation between the two countries is called - Gresham's Law - interest rate parity - purchasing power parity - the international Fisher effect

Purchasing power parity

The current exchange rate that is used for the immediate exchange of currencies is the - indirect rate - forward rate - direct rate - spot rate

Spot rate

True or false: forward contracts are typically written for periods of 6 months or less, but can be written for any time period

True

The international Fisher effect assumes that the appreciation or depreciation of a foreign currency relative to the U.S. dollar is proportional to the difference between ______ and ______ - the U.S. stock market index; the foreign stock market index - U.S. nominal interest rates; foreign nominal interest rates - the real interest rate; the expected rate of inflation - home currency; foreign currency

U.S. nominal interest rates; foreign nominal interest rates

The gold standard was dominant in the late 19th and early 20th centuries because the _________, which was the dominant international trading country, had a long-standing commitment to the gold standard - Germany - United Kingdom - United States - France

United Kingdom

The Bretton Woods Agreement called for currencies to _______ relative to one another within narrow boundaries with the help of government intervention - be fixed - float - adjust - move

Be fixed

The depletion of the United Kingdom's gold reserves during the Second World War rendered the gold standard impractical. This led to the creation of the ___________ in 1944 - Bretton Woods Agreement - Bank for International Settlement - Smithsonian Agreement - Yalta Agreement

Bretton Woods Agreement

Prior to 1995, most foreign exchange trading was executed ______, while after that most trading was executed ______ - by computer; over the internet - by paper; by computer - by paper; over the internet - by direct dealing; by electronic brokerage

By direct dealing; by electronic brokerage

Spot transactions can be conducted through ________ or ________ - commercial banks; non-bank currency dealers - currency dealers; credit unions - commercial banks; savings banks - currency kiosks; savings banks

Commercial banks; non-bank currency dealers

A prediction of the International Fisher Effect is that the currency of a country with higher interest rates will ________ relative to the currency of a country with lower interest rates - revalue - depreciate - appreciate - devalue

Depreciate

If a foreign currency _______ between the time an investor buys it and the time the investor sells it, the investor _______ - depreciates; gains - appreciates; loses - depreciates; loses - appreciates; gains

Depreciates; loses, and appreciates; gains

An exchange rate quote that gives the cost of one unit of foreign currency in U.S. dollars is called a(n) - direct quote - indirect quote - foreign quote - cross quote

Direct quote

A key assumption underlying purchasing power parity is that real risk-free interest rates are _______ across countries - decreasing - increasing - different - equal

Equal

Cash flows from the sale of products, services or assets denominated in a foreign currency are transacted in - the NYSE - the money market - the black market - foreign exchange markets

Foreign exchange markets

The price at which one currency can be exchanged for another currency is called the - foreign exchange rate - foreign price - exchange price - currency price

Foreign exchange rate

The exchange rate that is written into a forward contract is called the - contract rate - spot-forward rate - spot rate - forward rate

Forward rate

A ________ is a system in which a government that issues a currency guarantees to redeem each unit of currency upon demand for a fixed amount of gold - fiat standard - gold standard - specie standard - silver standard

Gold standard

An exchange rate quote that gives the cost of one U.S. dollar in foreign currency is called a(n) - cross quote - direct quote - indirect quote - foreign quote

Indirect quote

A consequence of the assumption that real risk-free interest rates are the same between two countries is that the interest rate differential between the two countries is equal to the - difference in their exchange rates against the dollar - inflation rate of the country with the lower interest rates - inflation rate differential between the two countries - inflation rate of the country with the higher interest rates

Inflation rate differential between the two countries

The theory that asserts that the return an investor would earn on an investment in their home country is the same as the return they would earn on a hedged foreign investment is the - Gresham's Law - purchasing power parity theorem - international Fisher effect - interest rate parity theorem

Interest rate parity theorem

A direct quote for a particular exchange rate is the _______ of the indirect quote for that exchange rate, and vice-versa - divisor - reverse - converse - inverse

Inverse

According to interest rate parity, if the interest rate in the US is ______ than the interest rate in a foreign country, the forward rate between the two currencies will be ______ the spot rate, by an approximately equal amount - less than; less than - greater than; greater than - less than; greater than - greater than; less than

Less than; less than, and greater than; greater than

Electronic trading platforms automatically provide traders with _________ gathered from _______ - the best prices available; multiple dealers - selling prices; multiple parties - price quotas; the Internet - the best prices available; the world

The best prices available; multiple dealers

A consequence of the international Fisher effect is that the gains to a U.S. investor from investing in a foreign currency with higher interest rates will be offset by the depreciation of that currency relative to the dollar, so the investor will realize - the same average nominal returns from investing in the U.S. dollar as from investing in the foreign currency - lower average nominal returns from investing in the U.S. dollar than from investing in the foreign currency - higher average nominal returns from investing in the U.S. dollar than from investing in the foreign currency

The same average nominal returns from investing in the U.S. dollar as from investing in the foreign currency

A consequence of interest rate parity is that the gains to a U.S. investor from investing in a foreign currency with higher interest rates and covering that position with a forward contract will be offset by difference between the forward and spot rates, so the investor will realize - higher returns from investing in the U.S. - the same returns from investing in the U.S. or the foreign country - higher returns from investing in the foreign country

The same returns from investing in the U.S. or the foreign country