Intro to exchange rates practice questions

A

(Table: Currency Values II) If you want, ceteris paribus, to invest dollars in 2007 and then convert them back into dollars in 2008, which is the best currency to invest in? a. the euro b. the real c. the pound d. the rupee

B

The equation E$/£ = 2 means that: a. one dollar buys 2 pounds. b. one dollar buys 1/2 a pound. c. 2 pounds buy one dollar. d. one dollar buys one pound.

A

If E$/£ moves from 2 to 3, this is a percentage change of: a. 50%. b. 33.3%. c. -33.3%. d. -50%.

C

A dining table costs $3,000 in New York and the same table costs 5,000 euros in Rome. Thus, $1 is equal to: a. one euro. b. 2 euros. c. 1.67 euros. d. 0.6 euros.

C

A large and sudden currency depreciation is widely known as: a. a managed float. b. a crawling peg. c. an exchange rate or currency crisis. d. a free float.

C

A spot contract is a(n): a. promise to purchase a foreign currency in 30 days. b. promise to purchase a foreign currency in 90 days. c. contract for the immediate exchange of currencies. d. agreement to sell currencies at a fixed price indefinitely.

B

Based on the information provided, one Canadian dollar is equal to _____ Mexican pesos and _____ Indian rupees. a. 12; 73.5 b. 10; 37.5 c. 12; 37.5 d. 12; 45

D

Exchange rates affect: I. international trade flows. II. international investment flows. III. corporate earnings. a. I b. II and III c. I and II d. I, II, and III

D

Forwards, swaps, futures, and options are examples of: a. spot market transactions. b. transaction costs. c. market frictions. d. derivatives.

C

If a euro costs $1.25 today, and it costs $1.50 tomorrow, what has happened to the dollar- euro exchange rate? a. Both the dollar and euro have depreciated.. b. The dollar has appreciated and the euro has depreciated. c. The dollar has depreciated and the euro has appreciated. d. Both the dollar and euro have appreciated..

A

If a government wishes to limit or prohibit fluctuations in exchange rates, it will choose: a. to fix, or peg, the value of its currency to some base currency over a sustained period. b. to allow its currency to rise or fall in price, depending on a variety of supply and demand factors. c. to suspend purchases and sales of its currency. d. to allow the rate to be set by international banks.

B

If a nation's currency buys fewer units of a foreign currency today than yesterday, we say the value of its currency has: a. appreciated. b. depreciated. c. stagnated. d. become inverted.

B

If the dollar-euro exchange rate on June 30, 2010, is $1.225 per euro, then the euro-dollar exchange rate would be: a. €2.45 per dollar. b. €0.816 per dollar. c. €1.225 per dollar. d. €1 per dollar.

D

If, in 2000, $1 = 1.5 euros, and in 2007, $1 = 0.9 euros, which of the following statements would be TRUE? a. More American tourists will find it cheaper to travel to Europe. b. More Europeans will stay home as visits to the United States become more expensive c. Europeans will import fewer products from the United States. d. Americans will import fewer products from Europe.

D

In general, the percentage of appreciation of one nation's currency is equal to: a. its rate of growth of real GDP. b. its purchasing power. c. its population growth. d. the percentage of depreciation of the foreign nation's currency.

B

The real appreciated against the US dollar by: a. 2.4%. b. 25%. c. 75%. d. 12.4%.

C

To bypass capital controls, people who need foreign currency sometimes resort to: a. forward foreign exchange markets. b. stock markets. c. black markets. d. farmers markets.

C

When exchange rates are ______, agreeing to wait for one week from today to engage in an international transaction carries ______. a. flexible rather than fixed; less risk b. flexible rather than fixed; the same amount of risk c. flexible rather than fixed; more risk d. fixed rather than flexible; the same amount of risk

A

When interpreting the meaning of an exchange rate, the first step is to always: a. know exactly what the exchange rate signifies in terms of which currency is the denominator. b. watch for ways the currency might lose value. c. learn about recent behavior of the exchange rate. d. know exactly what the rate is at any moment in time.

D

a. the dollar has appreciated 10% against the yen. b. the dollar has depreciated 24% against the yen. c. the yen has depreciated 12% against the dollar. d. the yen has depreciated 20% against the dollar.