Chapter5Practicequestionsandanswerkeys.docx

Chapter5Practicequestionsandanswerkeys.docx

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Chapter5Practicequestionsandanswerkeys

Chapter-5-Practice-questions-and-answer-keys

D

1.

2.

3.Supposeyouobservethefollowingexchangerates:

€1=$1.25;£1=$2.00.Calculatetheeuro-poundexchangerate. 

A. €1=£1.60

B. €1=£0.625

C. €2.50=£1

D. €1=£2.50

4.Supposeyouobservethefollowingexchangerates:

€1=$1.60;£1=$2.00.Calculatetheeuro-poundexchangerate. 

A. €1.3333=£1.00

B. £1.3333=€1.00

C. €3.00=£1

D. €1.25=£1.00

5.Findtheno-arbitragecrossexchangerate.Thedollar-euroexchangerateisquotedas$1.60=€1.00andthedollar-poundexchangerateisquotedat$2.00=£1.00. 

A. €1.25/£1.00

B. $1.25/£1.00

C. £1.25/€1.00

D. €0.80/£1.00

6.Theeuro-poundcrossexchangeratecanbecomputedas:

A. S（€/£）=S（$/£）⨯S（€/$）

B. 

C. 

D. alloftheabove

7.Supposeabankcustomerwith€1,000,000wishestotradeoutofeuroandintoJapaneseyen.Thedollar-euroexchangerateisquotedas$1.60=€1.00andthedollar-yenexchangerateisquotedat$1.00=¥120.Howmanyyenwillthecustomerget?

A. ¥192,000,000

B. ¥5,208,333

C. ¥75,000,000

D. ¥5,208.33

8.Supposeyouobservethefollowingexchangerates:

€1=$.85;£1=$1.60;and€2.00=£1.00.Startingwith$1,000,000,howcanyoumakemoney?

A. Exchange$1mfor£625,000at£1=$1.60.Buy€1,250,000at€2=£1.00;tradefor$1,062,500at€1=$.85.

B. Startwithdollars,exchangeforeurosat€1=$.85;exchangeforpoundsat€2.00=£1.00;exchangefordollarsat£1=$1.60.

C. Startwitheuros;exchangeforpounds;exchangefordollars;exchangeforeuros.

D. Noarbitrageprofitispossible.

9.YouareaU.S.-basedtreasurerwith$1,000,000toinvest.Thedollar-euroexchangerateisquotedas$1.20=€1.00andthedollar-poundexchangerateisquotedat$1.80=£1.00.Ifabankquotesyouacrossrateof£1.00=€1.50howmuchmoneycananastutetradermake?

A. Noarbitrageispossible

B. $1,160,000

C. $500,000

D. $250,000

10.YouareaU.S.-basedtreasurerwith$1,000,000toinvest.Thedollar-euroexchangerateisquotedas$1.60=€1.00andthedollar-poundexchangerateisquotedat$2.00=£1.00.Ifabankquotesyouacrossrateof£1.00=€1.20howcanyoumakemoney?

A. Noarbitrageispossible

B. Buyeuroat$1.60/€,buy£at€1.20/£,sell£at$2/£

C. Buy£$2/£,buy€at€1.20/£,sell€at$1.60/€

11.TheSingaporedollar—U.S.dollar（S$/$）spotexchangerateisS$1.60/$,theCanadiandollar—U.S.dollar（CD/$）spotrateisCD1.33/$andtheS$/CD1.15.Determinethetriangulararbitrageprofitthatispossibleifyouhave$1,000,000. 

A. $44,063profit

B. $46,093loss

C. Noprofitispossible

D. $46,093profit

12.Marketmicrostructurerefersto 

A. thebasicmechanicsofhowamarketplaceoperates.

B. thebasicsofhowtomakesmall（micro-sized）currencytrades.

C. howmacroeconomicvariablessuchasGDPandinflationaredetermined.

D. noneoftheabove

13.Theforwardprice 

A. maybehigherthanthespotprice.

B. maybethesameasthespotprice.

C. maybelessthanthespotprice.

D. alloftheabove

14.ForaU.S.traderworkinginAmericanquotes,iftheforwardpriceishigherthanthespotprice 

A. thecurrencyistradingatapremiumintheforwardmarket.

B. thecurrencyistradingatadiscountintheforwardmarket.

C. thenyoushouldbuyatthespot,holdontoitandsellattheforward—it'sabuilt-inarbitrage.

D. alloftheabove—itreallydependsifyou'retalkingAmericanorEuropeanquotes.

15.Theforwardmarket 

A. involvescontractingtodayforthefuturepurchaseofsaleofforeignexchangeatthespotratethatwillprevailatthematurityofthecontract.

B. involvescontractingtodayforthefuturepurchaseofsaleofforeignexchangeatapriceagreedupontoday.

C. involvescontractingtodayfortherightbutnotobligationtothefuturepurchaseofsaleofforeignexchangeatapriceagreedupontoday.

D. noneoftheabove

16.Ifonehasagreedtobuyforeignexchangeforward 

A. youhaveashortpositionintheforwardcontract.

B. youhavealongpositionintheforwardcontract.

C. untiltheexchangeratemoves,youhaven'tmademoney,soyou'reneithershortnorlong.

D. youhavealongpositioninthespotmarket.

17.Thecurrentspotexchangerateis$1.55/€andthethree-monthforwardrateis$1.50/€.Youenterintoashortpositionon€1,000.Atmaturity,thespotexchangerateis$1.60/€.Howmuchhaveyoumadeorlost?

A. Lost$100

B. Made€100

C. Lost$50

D. Made$150

18.Thecurrentspotexchangerateis$1.55/€andthethree-monthforwardrateis$1.50/€.Basedonyouranalysisoftheexchangerate,youareconfidentthatthespotexchangeratewillbe$1.52/€inthreemonths.Assumethatyouwouldliketobuyorsell€1,000,000.Whatactionsdoyouneedtotaketospeculateintheforwardmarket?

A. Takealongpositioninaforwardcontracton€1,000,000at$1.50/€.

B. Takeashortpositioninaforwardcontracton€1,000,000at$1.50/€.

C. Buyeurotodayatthespotrate,sellthemforward.

D. Selleurotodayatthespotrate,buythemforward.

19.Thecurrentspotexchangerateis$1.45/€andthethree-monthforwardrateis$1.55/€.Baseduponyoureconomicforecast,youareprettyconfidentthatthespotexchangeratewillbe$1.50/€inthreemonths.Assumethatyouwouldliketobuyorsell€100,000.Whatactionswouldyoutaketospeculateintheforwardmarket?

Howmuchwillyoumakeifyourpredictioniscorrect?

A. Takeashortpositioninaforward.Ifyou'rerightyouwillmake$15,000.

B. Takealongpositioninaforwardcontractoneuro.Ifyou'rerightyouwillmake$5,000.

C. Takeashortpositioninaforwardcontractoneuro.Ifyou'rerightyouwillmake$5,000.

D. Takealongpositioninaforwardcontractoneuro.Ifyou'rerightyouwillmake$15,000.

20.Consideratraderwhotakesalongpositioninasix-monthforwardcontractontheeuro.Theforwardrateis$1.75=€1.00;thecontractsizeis€62,500.Atthematurityofthecontractthespotexchangerateis$1.65=€1.00. 

A. Thetraderhaslost$625.

B. Thetraderhaslost$6,250.

C. Thetraderhasmade$6,250.

D. Thetraderhaslost$66,287.88

21.Thecurrentspotexchangerateis$1.55/€andthethree-monthforwardrateis$1.50/€.Basedonyouranalysisoftheexchangerate,youareconfidentthatthespotexchangeratewillbe$1.62/€inthreemonths.Assumethatyouwouldliketobuyorsell€1,000,000.Whatactionsdoyouneedtotaketospeculateintheforwardmarket?

Whatistheexpecteddollarprofitfromspeculation?

A. Sell€1,000,000forwardfor$1.50/€.

B. Buy€1,000,000forwardfor$1.50/€.

C. Waitthreemonths,ifyourforecastiscorrectbuy€1,000,000at$1.52/€.

D. Buy€1,000,000todayat$1.55/€;waitthreemonths,ifyourforecastiscorrectsell€1,000,000at$1.62/€.

22.Whenacurrencytradesatapremiumintheforwardmarket 

A. theexchangerateismorethanonedollar（e.g.€1.00=$1.28）.

B. theexchangerateislessthanonedollar.

C. theforwardrateislessthanthespotrate.

D. theforwardrateismorethanthespotrate.

23.Whenacurrencytradesatadiscountintheforwardmarket 

A. theforwardrateislessthanthespotrate.

B. theforwardrateismorethanthespotrate.

C. theforwardexchangerateislessthanonedollar（e.g.€1.00=$0.928）.

D. theexchangerateislessthanitwasyesterday.

24.TheSF/$spotexchangerateisSF1.25/$andthe180dayforwardexchangerateisSF1.30/$.Theforwardpremium（discount）is 

A. thedollaristradingatan8%premiumtotheSwissfrancfordeliveryin180days.

B. thedollaristradingata4%premiumtotheSwissfrancfordeliveryin180days.

C. thedollaristradingatan8%discounttotheSwissfrancfordeliveryin180days.

D. thedollaristradingata4%discounttotheSwissfrancfordeliveryin180days.

25.The€/$spotexchangerateis$1.50/€andthe120dayforwardexchangerateis1.45/€.Theforwardpremium（discount）is 

A. thedollaristradingatan8%premiumtotheeurofordeliveryin120days.

B. thedollaristradingata5%premiumtotheSwissfrancfordeliveryin120days.

C. thedollaristradingata10%discounttotheeurofordeliveryin120days.

D. thedollaristradingata5%discounttotheeurofordeliveryin120days.

26.. TheSF/$spotexchangerateisSF1.25/$andthe180forwardpremiumis8percent.Whatistheoutright180dayforwardexchangerate?

A. SF1.30/$

B. SF1.35/$

C. SF6.25/$

D. Noneoftheabove

27.ConsiderthefollowingspotandforwardratequotationsfortheSwissfranc?

Whichofthefollowingistrue:

A. TheSwissfrancisdefinitelygoingtobeworthmoredollarsinsixmonths.

B. TheSwissfrancisprobablygoingtobeworthlessindollarsinsixmonths.

C. TheSwissfrancistradingataforwarddiscount.

D. TheSwissfrancistradingataforwardpremium.

28.ConsiderthefollowingspotandforwardratequotationsfortheSwissfranc?

Whichofthefollowingistrue:

A. TheSwissfrancisdefinitelygoingtobeworthmoredollarsinsixmonths.

B. TheSwissfrancisprobablygoingtobeworthlessindollarsinsixmonths.

C. TheSwissfrancistradingataforwarddiscount.

D. TheSwissfrancistradingataforwardpremium.

29.Swaptransactions 

A. involvethesimultaneoussale（orpurchase）ofspotforeignexchangeagainstaforwardpurchase（orsale）ofapproximatelyanequalamountoftheforeigncurrency.

B. accountforabouthalfofInterbankFXtrading.

C. involvetradesofoneforeigncurrencyforanotherwithoutgoingthroughtheU.S.dollar.

D. alloftheabove

30.Thelargestandmostactivefinancialmarketintheworldis 

A. theFleetStreetExchangeinLondon.

B. theNYSEinNewYork.

C. theFXmarket.

D. noneoftheabove.

AnswerKey:

1.B

2.B

3.C

4.A

5.B