BUS 321 CH8

A ________ is a mutual fund that specializes in investing in a given country's firms. A. country fund B. global equity fund C. high risk fund D. localization fund

A

A spot transaction ________. A. is a foreign exchange transaction that is consummated immediately B. is a foreign exchange transaction that occurs sometime in the future C. involves currencies that are not freely tradeable D. involves a transaction in which the same currency is bought and sold simultaneously

A

Currencies that are freely tradable are called ________. A. hard currencies B. soft currencies C. foreign currencies D. inconvertible currencies

A

Euroloans are often quotes at which of the following rates? A. LIBOR B. the euro rate C. prime plus 2% D. prime plus .5%

A

If a currency is selling at a forward discount it means that the foreign-exchange market most likely believes that the ________. A. currency will depreciate over time B. country's economy is weak C. currency will appreciate over time D. country's economy is strong

A

In the world of spot markets, what is the meaning of immediately? A. two days after the trade date B. four business days after the trade date C. on the trade date D. simultaneous due to electronic transfers

A

Ross Manufacturing wants to sell foreign exchange on a spot basis and contracts with an international bank to handle the transaction. What is the most likely reason that Ross uses an international bank in this case? A. The bank can customize the spot to meet Ross' needs. B. Laws require that banks handle spot transactions. C. The bank will not charge Ross a service fee. D. Ross is a U.S. organization.

A

Suppose £1 is trading for $2.00 in New York City and $1.80 in London. A foreign exchange trader could take $1.80 and buy £1 in London's financial exchange market and then sell it for $2.00 in New York's financial exchange market. What is this an example of? A. two-point arbitrage B. three-point arbitrage C. covered interest D. arbitrage of goods

A

The ________ represents the marketplace's aggregate prediction of the spot price of the currency rate in the future. A. forward price B. spot price C. exchange rate D. par value

A

The international bond market is a major source of debt financing for which of the following? A. world governments B. regional organizations C. small firms D. small businesses

A

Tyler, a U.S. citizen, received a quote on the dollar/yen relationship of ¥108.21/$1. Tyler most likely received a(n) ________ quote. A. indirect B. direct C. yen D dollar

A

What is a currency selling at if the forward price is higher than the spot price? A. forward premium B. forward discount C. par value D. swap value

A

What term refers to a currency on deposit outside its country of issue? A. Eurocurrency B. Eurodollar C. Euroyen D. Europound

A

When an overseas banking operation is separately incorporated from the parent bank, what is it called? A. subsidiary bank B. branch bank C. affiliated bank D. correspondent bank

A

Which form of arbitrage involves profiting from price differences in two distinct markets? A. geographic arbitrage B. three point arbitrage C. covered interest D. arbitrage of goods

A

Which of the following is a characteristic of most offshore financial centers? A. political stability B. services for residents C. accounting scandals D. a lack of legal expertise

A

Which term refers to the price of the foreign currency in terms of the home currency? A. direct exchange rate B. indirect quote C. indirect exchange rate D. direct spot price

A

A ________ allows, but does not require, a firm to buy or sell a specified amount of foreign currency at a specified price on a specified date. A. forward swap B. currency option C. call option D. discount plan

B

A ________ is a contract for a standard amount on a standard delivery date. A. forward contract B. currency future C. currency option D. call option

B

A call option ________. A. is a privately traded currency vehicle available only through stockbrokers B. grants the right to buy a specified amount of foreign currency at a set price C. allows the holder to buy foreign exchange at the wholesale rate D. is another term for currency future

B

A forward transaction ________. A. is a foreign exchange transaction that is consummated immediately B. is a foreign exchange transaction that occurs sometime in the future C. involves currencies that are not freely tradeable D. involves a transaction in which the same currency is bought and sold simultaneously

B

A(n) ________ is a large, liquid financial asset that can be traded anywhere at any time. A. international stock B. global bond C. global equity D. eurodollar

B

Carol, an American banker, received a quote between the U.S. dollar and the Japanese yen of $.00924/¥1. Carol most likely received a(n) ________ quote. A. indirect B. direct C. dollar D. yen

B

If the British pound is selling at $1.5212 spot on September 3, and at a 90-day forward rate of $1.5203, then ________. A. the pound is selling at a forward premium B. the pound is selling at a forward discount C. an investor should buy a call option D. speculators should buy put options

B

The ________ consists of foreign-exchange transactions that are to be consummated immediately. A. soft currency market B. spot market C. hard currency market D. forward market

B

The ________ is the primary third currency used in calculating cross rates. A. euro B. US dollar C. Japanese yen D. swiss franc

B

The theory of ________ states that the prices of tradable goods, when expressed in a common currency, will tend to equalize across countries as a result of exchange rate changes. A. supply and demand B. purchasing power parity C. arbitrage D. competitive advantage

B

The world's largest trading markets include which one of the following? A. London B. Frankfurt C. Dallas D. Peking

B

What is a Eurodollar? A. a euro held by an American B. a U.S. dollar deposited in a European bank C. a euro deposited in a U.S. bank. D. any currency deposited in a country other than the country of issue

B

What is a currency selling at if the forward price is less than the spot price? A. forward premium B. forward discount C. par value D. swap price

B

When an overseas banking operation is incorporated within the parent bank, what is it called? A. subsidiary bank B. branch bank C. affiliated bank D. correspondent bank

B

Which of the following is not an example of a participant in the foreign exchange market? A. Pakistani tourists exchanging rupees for British pounds at a bank in London B. British retailer Marks and Spenser purchasing appliances from a British supplier C. the U.S. government arranging a multimillion-dollar loan to Mexico D. Toyota exporting cars to Canada from factories in Japan

B

Which of the following would be considered a soft currency? A. Swiss Franc B. Mexican Peso C. Canadian dollar D. US dollar

B

Which of the following would most likely help international businesspeople to forecast future changes in exchange rates? A. swap transaction B. forward price C. put option D. spot price

B

_______ assume exchange rate risks by acquiring positions in a currency and hoping that they can correctly predict changes in the currency's market value. A. commercial customers B. speculators C. arbitrageurs D. individuals

B

________ is a commodity that consists of currencies issued by countries other than one's own. A. Eurozone B. foreign exchange C. floating exchange D. international monetary fund

B

________ is profitable whenever the cost of buying a currency directly differs from the cross rate of exchange. A. Two-point arbitrage B. Three-point arbitrage C. Covered interest D. Arbitrage of goods

B

________ suggests that arbitrage activities will continue until the price of the good is identical in both markets. A. purchasing power parity B. the law of one price C. equilibrium pricing D. two point arbitrage

B

A bond that is issued by Nestle, a Swiss company, that is denominated in yen and sold to residents of Japan is most likely a ________. A. Eurobond B. global bond C. foreign bond D. country fund

C

A(n) ________ is the price of the home currency in terms of the foreign currency. A. direct exchange rate B. direct quote C. indirect exchange rate D. indirect rate price

C

A(n)________ shows the demand for a currency that is derived from foreigners' desire to acquire the country's goods, services, and assets. A. direct quote B. indirect quote C. derived demand curve D. upward sloping curve

C

An inconvertible currency ________. A. is a foreign exchange transaction that is consummated immediately B. is a foreign exchange transaction that occurs sometime in the future C. involves currencies that are not freely tradable D. involves a transaction in which the same currency is bought and sold simultaneously

C

Apex Enterprises wants the right to buy a foreign currency at a specified price at any time up to a specified date. Apex most likely needs a ________. A. forward premium B. forward discount C. call option D. put option

C

If a currency is selling at a forward premium it most likely means that the foreign-exchange market believes that the ________. A. currency will depreciate over time B. country's economy is weak C. currency will appreciate over time D. country's economy is strong

C

On the basis of which interest rate are Euroloans often quoted? A. United States Prime Rate B. European Central Bank Offer Rate C. London Interbank Offer Rate D. International Monetary Fund Interest Rate

C

The ________ is an exchange rate between two currencies calculated through the use of a third currency. A. forward rate B. call rate C. cross rate D. covered interest rate

C

The currencies of countries suffering from balance of payment trade deficits or high inflation rates are more likely to sell at a ________. A. spot discount B. spot premium C. forward discount D. forward premium

C

The price of foreign exchange is set by ________. A. the international monetary fund B. the gold standard C. demand and supply in the marketplace D. administrators of the World Bank

C

The primary purpose of the foreign-exchange market is to ________. A. encourage globalization B. assist developing countries C. facilitate currency conversions D. stabilize the currency exchange rate

C

What kind of arbitrage occurs when the difference between two countries' interest rates is not equal to the forward discount/premium on their currencies? A. two-point arbitrage B. three-point arbitrage C. covered interest D. geographic arbitrage

C

What most likely happens when the price of yen falls? A. the quantity of yen demanded goes down B. the demand curve slopes downward C. the demand curve slopes upward D. the value of yen fluctuates

C

What percentage of all foreign exchange transactions take place in the spot market? A. 10% B. 24% C. 33% D. 47%

C

When an overseas banking operation is jointly owned by a parent bank and a local or foreign partner, what is it called? A. subsidiary bank B. branch bank C. affiliated bank D. correspondent bank

C

Which form of arbitrage is considered the most important in the foreign-exchange market? A. two-point arbitrage B. three-point arbitrage C. covered interest D. arbitrage of goods

C

_______ is the riskless purchase of a product in one market for immediate resale in a second market in order to profit from a price discrepancy. A. commercial exchange B. foreign exchange C. arbitrage D. parity

C

________ attempt to exploit small differences in the price of a currency between markets by buying currencies in lower-priced markets and selling in higher-priced markets. A. commercial customers B. speculators C. arbitrageurs D. individuals

C

________ suggests that national differences in expected inflation rates yield differences in nominal interest rates among countries. A. Two-point arbitrage B. Three-point arbitrage C. The international Fisher effect D. The law of one market price

C

A swap transaction ________. A. is a foreign exchange transaction that is consummated immediately B. is a foreign exchange transaction that occurs sometime in the future C. involves currencies that are not freely tradeable D. involves a transaction in which the same currency is bought and sold simultaneously

D

Moffet Manufacturing wants the right to sell a foreign currency at a specified price at any time up to a specified date. Moffet most likely needs a ________. A. forward premium B. forward discount C. call option D. put option

D

The ________ consists of foreign-exchange transactions that are to occur sometime in the future. A. soft currency market B. spot market C. hard currency market D. forward market

D

The ________ tries to exploit differences in the interest rates between countries. A. currency option B. country fund C. collective rate D. carry trade

D

The currencies of countries enjoying BOP trade surpluses or low inflation rates are more likely to sell at a ________. A. spot discount B. spot premium C. forward discount D. forward premium

D

The rising value of the Canadian dollar relative to the U.S. dollar has which of the following effects? A. Canadian imports to the U.S are down B. Canadian vacationers pay higher costs for trips to the U.S C. Canadian consumers pay higher prices for US made goods D. Canadian retailers in border towns lose customers to US stores

D

Two-point arbitrage is also known as ________. A. equilibrium arbitrage B. forward arbitrage C. discount arbitrage D. geographic arbitrage

D

What percentage of all foreign-exchange trading involves the U.S. dollar? A. 25% B. 47% C. 70% D. 85%

D

Which of the following countries is an important offshore financial center? A. Turks and Caicos B. Mexico C. South Korea D. Bermuda

D

Which of the following is a common form of foreign exchange arbitrage? A. two point arbitrage B. long distance arbitrage C. internet arbitrage D. uncovered interest

D

Worldwide volume of foreign exchange trading is about ________ per day. A. $ 2 billion B. $ 50 billion C. $2 trillion D. $ 4 trillion

D

________ focus on offering banking and other financial services to nonresident customers. A. subsidiary banks B. branch banks C. affiliated banks D. offshore financial centers

D