chap 14

e

. In 2010, about A) 20 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. B) 30 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. C) 10 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. D) 40 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars. E) 85 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.

d

A foreign exchange swap A) is a spot sale of a currency. B) make up a negligible proportion of all foreign exchange trading. C) is a forward repurchase of the currency. D) is a spot sale of a currency combined with a forward repurchase of the currency. E) is a spot sale of a currency combined with a forward sale of the currency.

d

A the beginning of 2012, you pay $100 for a share of stock that then pays you a dividend of $1 at the beginning of 2013. If the stock price rises from $100 to $109 per share over the year, then you have earned an annual rate of return of A) 1 percent. B) 5 percent. C) 9 percent. D) 10 percent. E) 4 percent.

e

A(n) ________ of a nation's currency will cause imports to ________ and exports to ________, all other things held constant. A) appreciation; increase; increase B) depreciation; decrease; decrease C) depreciation; increase; decrease D) appreciation; decrease; increase E) depreciation; decrease; increase

e

An appreciation of a country's currency A) decreases the relative price of its exports and lowers the relative price of its imports. B) lowers the relative price of its exports and raises the relative price of its imports. C) raises the relative price of its exports and raises the relative price of its imports. D) raises the relative price of its exports and does not affect the relative price of its imports. E) raises the relative price of its exports and lowers the relative price of its imports.

b

By April 2010 A) only about 60 percent of foreign exchange trades were against euros. B) only about 39 percent of foreign exchange trades were against euros. C) only about 10 percent of foreign exchange trades were against euros. D) only about 24 percent of foreign exchange trades were against euros. E) only about 42 percent of foreign exchange trades were against euros.

c

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.50 dollars per British pound? A) 25 British pounds B) 10 British pounds C) 30 British pounds D) 35 British pounds E) 20 British pounds

b

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.60 dollars per British pound? A) 38.125 British pounds B) 28.125 British pounds C) 48.125 British pounds D) 18.125 British pounds E) 58.125 British pounds

c

Exxon Mobil wants to pay 160,000 to a German supplier. They get an exchange rate quotation from its own commercial bank and instructs it to debit their dollar account and pay 160,000 to the supplier's German account. If the exchange rate quoted is $1.2 per euro, how much is debited to Exxon Mobil's account? A) $172,000 B) $160,000 C) $192,000 D) $150,000 E) $180,000

a

Forward and spot exchange rates A) move closely together and are equal on the value date. B) are always such that the forward exchange rate is higher. C) are necessarily equal. D) do not move closely together. E) are unrelated to the value date.

c

Futures contracts differ from forward contracts in that A) future contracts ensures you will receive a certain amount of foreign currency at a specified future date. B) future contracts are a disadvantage if your views about the future spot exchange rate are to change. C) future contracts allow you to sell your contract on an organized futures exchange. D) future contracts bind you into your end of the deal. E) futures contracts don't allow you to realize a profit of a loss right away.

e

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 1.80 dollars per British pound? A) 30 British pounds B) 20 British pounds C) 40 British pounds D) 10 British pounds E) 25 British pounds

c

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 2.00 dollars per British pound? A) 30 British pounds B) 40 British pounds C) 22.5 British pounds D) 12.5 British pounds E) 32.5 British pounds

a

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.25 dollars per one British pound? A) 62.5 dollars B) 50 dollars C) 60 dollars D) 70 dollars E) 40 British pounds

b

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.50 dollars per one British pound? A) 60 dollars B) 75 dollars C) 80 dollars D) 50 dollars E) 70 dollars

d

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.80 dollars per one British pound? A) 100 dollars B) 40 dollars C) 50 dollars D) 90 dollars E) 95 dollars

d

If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then A) an investor should invest only in dollars if the expected dollar depreciation against the euro is 8 percent. B) an investor should invest only in euros. C) an investor should invest only in dollars. D) an investor should invest only in euros if the expected dollar depreciation against the euro is 8 percent. E) an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 8 percent.

c

If the dollar interest rate is 10 percent and the euro interest rate is 6 percent, then an investor should A) invest only in dollars. B) invest only in euros if the exchange rate is expected to remain constant. C) invest only in dollars if the exchange rate is expected to remain constant. D) be indifferent between dollars and euros. E) invest only in euros.

c

If the dollar interest rate is 10 percent, the euro interest rate is 12 percent, then A) an investor should invest only in euros. B) an investor should invest only in euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. C) an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. D)an investor should be indifferent between dollars and euros an investor should invest only in dollars if the expected dollar appreciation against the euro is 4 percent. E) an investor should invest only in dollars

e

If the dollar interest rate is 10 percent, the euro interest rate is 6 percent, then A) an investor should invest only in dollars. B) an investor should invest only in euros. C) an investor should invest only in euros if the expected dollar depreciation against the euro is 4 percent. D) an investor should invest only in dollars if the expected dollar depreciation against the euro is 4 percent. E) an investor should be indifferent between dollars and euros if the expected dollar depreciation against the euro is 4 percent.

a

If the dollar interest rate is 4 percent, the euro interest rate is 6 percent, then A) invest only in euros if the exchange rate is expected to remain constant. B) an investor should invest only in dollars. C) an investor should invest only in euros. D) invest only in dollars if the exchange rate is expected to remain constant. E) an investor should be indifferent between dollars and euros.

d

If the goods' money prices do not change, a depreciation of the dollar against the pound A) makes British jeans more expensive in Britain. B) doesn't change the relative price of sweaters and jeans. C) makes British sweaters cheaper in terms of American jeans. D) makes British sweaters more expensive in terms of American jeans. E) makes American jeans more expensive in terms of British sweaters.

b

If the goods' money prices do not change, an appreciation of the dollar against the pound A) makes British jeans more expensive in Britain. B) makes British sweaters cheaper in terms of American jeans. C) makes American jeans cheaper in terms of British sweaters. D) doesn't change the relative price of sweaters and jeans. E) makes British sweaters more expensive in terms of American jeans

a

Nondeliverable forward exchange markets in centers such as Hong Kong and Singapore help to circumvent which problem? A) inconvertible currencies cannot be traded in foreign markets B) high travel costs from Asia to "traditional" foreign exchange markets C) loss of goods shipped from Hong Kong and Singapore D) lag between the spot exchange date and the value date E) unstable currencies that hold no purchasing power

c

Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro. Further, assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar deposits is 10 percent and on euro it is 4 percent. Under these assumptions A) it is hard to tell whether interest parity does or does not hold. B) interest parity does not hold. C) interest parity does hold. D) Not enough information is given to answer the question. E) interest parity fluctuates.

b

The Japanese currency is called the A) Euro. B) Yen. C) DM. D) Pound. E) Dollar.

b

The action of arbitrage is A)the process of buying and selling currency at the same price. B) the process of buying a currency cheap and selling it dear. C) the process of selling currency at different prices in different markets. D) the process of buying a currency and holding onto it to take it off the market. E) the process of buying a currency dear and selling it cheap.

c

The covered interest rate parity condition can be stated as follows: The interest rate on dollar deposits equals the interest rate on euro deposits ________ the forward ________ on dollars against euros. A) plus; premium B) times; premium C) plus; discount D) minus; discount E) minus; premium

a

The covered interest rate parity condition can be stated as follows: The interest rate on dollar deposits equals the interest rate on euro deposits ________ the forward ________ on euros against dollars. A) plus; premium B) times; premium C) minus; premium D)plus; discount E)minus; discount

e

The dollar rate of return on euro deposits is A) the euro interest rate plus the rate of inflation against the euro. B) the euro interest rate minus the rate of inflation against the euro. C) approximately the euro interest rate minus the rate of depreciation of the dollar against the euro. D) the rate of appreciation of the dollar against the euro. E) approximately the euro interest rate plus the rate of depreciation of the dollar against the euro

e

Which one of the following statements is the MOST accurate? A) An appreciation of a country's currency makes its goods more expensive. B) A depreciation of a country's currency makes its goods more expensive for foreigners. C) A depreciation of a country's currency makes its goods cheaper. D) A depreciation of a country's currency makes its goods cheaper for its own residents. E) A depreciation of a country's currency makes its goods cheaper for foreigners.

d

The following is an example of Radio Shack hedging its foreign currency risk A) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to sell yen. B) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen in a forward-exchange deal. C) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen at a spot-exchange 1 month from now. D) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to buy yen. E) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack buys yen at a spot-exchange 1 month from now.

e

The future date on which the currencies are actually exchanged is called what? A) the two-day window B) the spot exchange date C) the commitment date D) the forward exchange rate E) the value date

b

The largest trading of foreign exchange occurs in A) Tokyo. B) London. C) New York. D) Frankfurt. E) Singapore.

a

What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 50 dollars in New York and 100 Pounds in London? A) 0.5 dollars per British pound B) 2.5 dollars per British pound C) 2 dollars per British pound D) 3.5 dollars per British pound E) 1.5 dollars per British pound

e

What is the exchange rate between the dollar and the British pound if a pair of American jeans costs 60 dollars in New York and 30 Pounds in London? A) 2.5 dollars per British pound B) 3.5 dollars per British pound C) 1.5 dollars per British pound D) 0.5 dollars per British pound E) 2 dollars per British pound

e

What is the expected dollar rate of return on dollar deposits if today's exchange rate is $1.10 per euro, next year's expected exchange rate is $1.165 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%? A) 0% B) 15% C) -1% D) 11% E) 10%

c

What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.10 per euro, next year's expected exchange rate is $1.166 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%? A) -1% B)15% C) 11% D) 10% E) 0%

b

What is the expected dollar rate of return on euro deposits if today's exchange rate is $1.167 per euro, next year's expected exchange rate is $1.10 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%? A) 11% B) -1% C) 0% D) 10%

c

When a country's currency depreciates A) foreigners are not affected, but domestic residents find that imports from abroad are more expensive. B) foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are more expensive. C) foreigners find that its exports are cheaper and domestic residents find that imports from abroad are more expensive. D) foreigners find that its exports are cheaper; however, domestic residents are not affected. E) foreigners find that its exports are more expensive, and domestic residents find that imports from abroad are cheaper.

c

Which major actor is at the center of the foreign exchange market? A) non-bank financial institutions B) individual firms C) commercial banks D) corporations E) central banks

d

Which of the following is NOT a major actor in the foreign exchange market? A) non-bank financial institutions B) commercial banks C) corporations D) tourists E) central banks

c

Which of the following is NOT an example of a financial derivative? A) swaps B) forwards C) bonds D) futures E) options

b

Which of the following statements is TRUE about a vehicle currency? A) There is much skepticism that the euro will ever evolve into a vehicle currency on par with the dollar. B) The dollar is sometimes called a vehicle currency because of its pivotal role in many foreign exchange deals. C) It is widely used to denominate contracts made by parties who reside in the country that issues the vehicle currency. D) Vehicle currencies include nondeliverable currencies like the renminbi. E) The pound sterling, once second only to the dollar as a key international currency, is beginning to rise in importance.

d

Which of the following type of funds cater to wealthy individuals, are not bound by government regulations, and are actively traded in foreign exchange markets? A) mutual funds B) pension funds C) exchange funds D) hedge funds

a

Which one of the following statements is the MOST accurate? A) Spot exchange rates and forward exchanges rates are equal when the value date and the date of the spot transaction are the same. B) Spot exchange rates and forward exchange rates never move closely together. C) Spot exchange rates are always higher than forward exchange rates. D) Spot exchange rates are always lower than forward exchange rates. E) Spot exchange rates and forward exchanges rates are always equal.

e

Which one of the following statements is the MOST accurate? A) A rise in the interest rate offered by dollar deposits does not affect the U.S. dollar. B) A rise in the interest rate offered by the dollar causes the euro to appreciate. C) A rise in the interest rate offered by dollar deposits causes the dollar to appreciate. D) A rise in the interest rate offered by dollar deposits causes the dollar to depreciate. E) For a given euro interest rate and constant expected exchange rate, a rise in the interest rate offered by dollar deposits causes the dollar to appreciate.

b

Which one of the following statements is the MOST accurate? A) For a given dollar interest rate and a constant expected exchange rate, a rise in the interest rate of the euro causes the dollar to depreciate. B) For a fixed interest rate, a rise in the expected future exchange rate causes a rise in the current exchange rate. C) For a fixed interest rate, a rise in the expected future exchange rate causes a fall in the current exchange rate. D) For a fixed interest rate, a fall in the expected future exchange rate causes a rise in the current exchange rate. E) For a fixed interest rate, a rise in the expected future exchange rate does not cause a change in the current exchange rate.

d

Which one of the following statements is the MOST accurate? A) Since dollar and yen interest rates are measured in comparable terms, they move quite the same over time. B) Since dollar and yen interest rates are measured in comparable terms, they still move quite differently over time. C) Since dollar and yen interest rates are measured in comparable terms, they can move quite differently over time. D) Since dollar and yen interest rates are not measured in comparable terms, they can move quite differently over time. E) Since dollar and yen interest rates are so similar, they move quite the same way over time