IB Quiz 10

________ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. A) Efficient market theory B) Fundamental analysis C) Technical analysis D) Elliott wave analysis

Fundamental analysis

A pen costs £50 in Britain. An identical pen costs $70 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct? A) The U.S. offers a better deal B) The deal is the same in both countries C) A trader can make money by buying the pen in Britain and selling it in the United States at $70 D) Britain offers a better deal

The U.S. offers a better deal.

The short-term movement of funds from one currency to another as an attempt to profit from shifts in exchange rates is called A) spot exchange B) currency speculation C) a carry trade D) basis risk

currency speculation.

A lag strategy involves A) paying foreign currency payables before they are due when a currency is expected to appreciate B) delaying collection of foreign currency receivables if that currency is expected to appreciate C) attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate D) 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.

If many people want euros and euros are in short supply, and a few people want Japanese yen and yen are in plentiful supply, the yen is likely to ________ against the euro. A) appreciate B) remain stable C) strengthen D) depreciate

depreciate

Assuming the 60-day forward exchange rate was $1 = ¥110 and the spot exchange rate was $1 = ¥120, the dollar is selling at a(n) ________ on the 60-day forward market. A) discount B) margin C) increment D) premium

discount

The extent to which a firm's future international earning power is affected by changes in exchange rates in the long-run is known as ________ exposure. A) financial B) transaction C) translation D) economic

economic

When a firm insures itself against foreign exchange risk, it is A) engaging in currency speculation B) employing a lead strategy C) employing a lag strategy D) engaging in hedging

engaging in hedging

What is the name of the market in which the currency of one country is converted into currency of another country? A) NYSE B) foreign exchange market C) currency market D) carry trade market

foreign exchange market

The ________ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country. A) theory of competitive advantage B) theory of price inflation C) purchasing power parity theory D) law of one price

purchasing power parity theory

A Japanese tourist in New York goes to a bank to convert his yen into dollars. The exchange rate that will be used for conversion will be the A) historical exchange rate B) forward exchange rate C) futures exchange rate D) spot exchange rate

spot exchange rate

According to the law of one price, identical products sold in different countries must sell for the same price when A) they are sold by competing companies B) their price is based on the lowest price available C) their price is expressed in terms of the same currency D) they are sold by the same company

their price is expressed in terms of the same currency.

Which of the following is the most important vehicle currency by trade volume? A) U.S. dollar B) yen C) euro D) British pound

U.S. dollar

When is a currency said to be externally convertible? A) When neither residents nor nonresidents are allowed to convert it into a foreign currency B) When only nonresidents can convert it into a foreign currency without any limitations C) When only residents can convert it into a foreign currency D) When both residents and nonresidents can purchase unlimited amounts of a foreign currency

When only nonresidents can convert it into a foreign currency without any limitations