International Business Chapter 9
Which of the following is the largest source of foreign-exchange income in Mexico?
A remittance income
How does arbitrage differ from speculation?
A speculator buys or sells foreign currency with the hope that that currency will either weaken or strengthen in the future, resulting in a profit.
In which of the following transactions is a currency switched with another on one date and then switched back on a future date?
FX swap
In which of the following transactions is one currency swapped for another on one date and then swapped back on a future date?
FX swap
Which of the following is NOT one of the top four locations for trading foreign exchange?
Hong Kong
Why is London most likely the top market for trading foreign exchange?
London is uniquely positioned geographically in terms of time zones.
Why are options most likely so attractive to companies?
Options provide companies with more flexibility than a forward contract.
Which of the following is NOT one of the top exchanges that trade in foreign currency futures and options?
UBS
The _____ is the most widely traded currency in the world.
US dollar
Historically, what is the top remittance-receiving country in Latin America?
Uruguay
Which of the following would have the LEAST influence on price setting in the foreign-exchange market?
Western Union
A letter of credit that provides an exporter with the guarantee of another bank in addition to the importer's bank is called _________.
a confirmed letter of credit
The U.S. dollar is most likely traded widely because it is ________.
a reserve currency held by many central banks
Ryan, a foreign exchange dealer, sold U.S. dollars for Swiss francs in the U.S., then sold Swiss francs for Japanese yen in Switzerland, and then sold the Japanese yen for U.S. dollars in the U.S. Ryan hopes that he will end up with more U.S. dollars than when he began. Which term best describes Ryan's actions?
arbitrage
The interbank market in foreign exchange is where _________.
banks trade currency with each other
Melissa, a foreign exchange trader, wants to buy euros from Stephanie. Which of the following is the price at which Melissa is willing to buy euros?
bid
An irrevocable letter of credit _________.
can be amended only of all parties involved agree
If a company from Country A decides to sell merchandise to a company from Country B, then the company from Country A ______.
can denominate the sale in either currency and use the foreign-exchange market to convert currency
Which of the following handles the majority of all foreign-exchange activities?
commercial banks
In a ______, one party directs another party to make payment.
commercial bill of exchange
Stella, who works and lives in San Diego, wants to send money to her mother who lives in a small village south of Puerto Vallarta, Mexico. Stella typically uses Western Union to handle the transaction. Which of the following is the most likely reason that Stella uses Western Union?
convenience
Companies most likely use the foreign-exchange market to _______.
convert money for use in financial transactions
Albert, an employee at Morgan Stanley, has been given the task of handling the foreign exchange for a customer who is moving from Brazil to Switzerland in one week. Which of the following should Albert most likely use when exchanging the client's Brazilian real for Swiss francs?
cross rate
A(n) ______is the price of a currency.
exchange rate
The relationship between the value of the Brazilian and Chinese currencies is known as the ______.
exchange rate
Companies most likely use the foreign-exchange market to ______.
facilitate regular business transactions
In foreign-exchange markets, reporting dealers are _____.
financial institutions that actively participate in local and global foreign-exchange markets
Which term refers to money denominated in the currency of another nation or group of nations?
foreign exchange
If Toranga-san, who works for a Japanese trading company that operates in Japanese yen, wanted to purchase Spanish castanets from a company in Barcelona and needed euros to complete the transaction, he would use the ______ to gain access to spot euros.
foreign-exchange market
If a foreign currency is quoted in American terms (the direct quote) and the forward rate for a foreign currency is less than the spot rate, the foreign currency is selling at a ________.
forward discount
The pound-dollar forward rate for pounds is $1.9068, and the spot rate is $1.9100. Pounds are selling at a ________.
forward discount
If a foreign currency is quoted in American terms (the direct quote) and the forward rate is greater than the spot rate, the foreign currency is selling at a ________.
forward premium
The pound-dollar forward rate for pounds is $1.9068, and the spot rate is $1.9059. Pounds are selling at a _______.
forward premium
Outright forward transactions involve the exchange of currency on a future date beyond two business days at a fixed exchange rate, known as the _____.
forward rate
A foreign-exchange contract that is an agreement between two parties to buy or sell a particular currency at a particular price at a particular date as specified in a standardized contract to all participants in the specified market is known as a(n) ________.
futures contract
As a trading currency, the euro is ________.
gaining ground against the U.S. dollar in Eastern European countries
Jason works in finance at an MNE. Part of his job is to invest large sums of money in various markets. His latest transaction was investing $10,000 in British pounds for 120 days, then taking the British pounds and investing them in euros for 90 days, and then converting it all back to US dollars. Jason is most likely participating in ________.
interest arbitrage
Which of the following is an example of interest arbitrage?
investing in debt instruments in different currencies or different countries
Compared with a forward contract, a futures contract _______.
is only traded on an exchange.
A major challenge faced by Western Union in wiring money between the US and Mexico is that ______.
it is facing competition from some commercial banks
When selecting a commercial and/or investment bank to deal in foreign exchange, corporation are most likely to use ______.
more than one bank to meet different needs
Which of the following is the price at which the trader is willing to sell foreign currency?
offer
A(n) _________- is the right but not the obligation to buy or sell a foreign currency within a certain time period or on a specific date at a specific exchange rate.
option
Which of the following best describes arbitrage?
purchasing foreign currency on one market for immediate resale on another market
Gomez Enterprises, a firm based in Mexico City, exported 1,000 circuit boards to Taylor Industries, a firm based in Chicago. Taylor received a document from Gomez that requests immediate payment for the goods. Gomez has most likely sent a ________.
sight draft
Anita, an employee at ABX Partners, a hedge fund firm, has purchased euros because she believes that the euro will strengthen against other currencies. Which term best describes Anita's activities?
speculation
In the spot market, the ______ is the difference between the bid and offer rates and is the trader's profit margin.
spread
A spectacular is someone who _________.
takes positions in foreign-exchange markets to earn a profit
In the foreign-exchange market, the bid is the rate at which ______.
the trader is willing to buy foreign exchange
A document requesting payment 30 days after delivery is known as a ________.
time draft
Which of the following is NOT a reason a company would deal in foreign exchange?
to import merchandise denominated in its currency rather than the currency of the exporter
Western Union's role in foreign-exchange trading is best described as ________.
transferring currency from one country to another
Which of the following is most likely true regarding options?
An option is a right to sell foreign currency
Which of the following is an example of cryptocurrency?
Bitcoin
An example of an electronic brokerage system used to trade foreign exchange is _______.
Reuters
______ involve the exchange of currency the second day after the date on which the two foreign-exchange traders agree to the transaction.
Spot transactions
