questions3 the foreign exchange rate market.docx

questions3 the foreign exchange rate market.docx

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questions3theforeignexchangeratemarket

CHAPTER3

FOREIGNEXCHANGE

MULTIPLE-CHOICEQUESTIONS

1.AssumeyouareanAmericanexporterandexpecttoreceive50poundssterlingattheendof60days.Youcanremovetheriskoflossduetoadevaluationofthepoundsterlingby:

a.Sellingsterlingintheforwardmarketfor60-daydelivery

b.Buyingsterlingnowandsellingitattheendof60days

c.Sellingthedollarequivalentintheforwardmarketfor60-daydelivery

d.KeepingthesterlinginBritainafteritisdeliveredtoyou

2.WhichofthefollowingtendstocausetheU.S.dollartoappreciateinvalue?

a.AnincreaseinU.S.pricesaboveforeignprices

b.Rapideconomicgrowthinforeigncountries

c.AfallinU.S.interestratesbelowforeignlevels

d.AnincreaseinthelevelofU.S.income

3.Concerningthecoveringofexchangemarketrisks—assumingthatadepreciationofthedomesticcurrencyisanticipated,onecansaythatthereisanincentivefor:

a.Exporterstorushtocovertheirfutureneeds

b.Importerstorushtocovertheirfutureneeds

c.Bothexportersandimporterstorushtocovertheirfutureneeds

d.Neitherexportersnorimporterstorushtocovertheirfutureneeds

4.Whenshort-terminterestratesbecomelowerinTokyothaninNewYork,interestarbitrageoperationswillmostlikelyresultina（an）:

a.Increaseinthespotpriceoftheyen

b.Increaseintheforwardpriceofthedollar

c.Saleofdollarsintheforwardmarket

d.Purchaseofyeninthespotmarket

5.AnappreciationinthevalueoftheU.S.dollaragainsttheBritishpoundwouldtendto:

a.DiscouragetheBritishfrombuyingAmericangoods

b.DiscourageAmericansfrombuyingBritishgoods

c.Increasethenumberofdollarsthatcouldbeboughtwithapound

d.DiscourageU.S.touristsfromtravelingtoBritain

6.Concerningtheforeignexchangemarket,onecanbestsaythat:

a.Thereisaspotmarketforvirtuallyeverycurrencyintheworld

b.Themarketishighlycentralizedlikethestockexchange

c.Mostforeignexchangepaymentsaremadewithbanknotes

d.Thevaluesoftheforwardandspotratesarealwaysinagreement

7.SupposeresearchersdiscoverthatSwissbeercausescancerwhengiveninlargeamountstoBritishmice.Thisfindingwouldlikelyresultina（an）:

a.IncreaseinthedemandforSwissfrancs

b.DecreaseinthedemandforSwissfrancs

c.IncreaseinthesupplyofSwissfrancs

d.DecreaseinthesupplyofSwissfrancs

8.SupposethatrealincomesincreasemorerapidlyintheUnitedStatesthaninMexico.IntheUnitedStates,thissituationwouldlikelyresultina（an）:

a.Increaseinthedemandforpesos

b.Decreaseinthedemandforpesos

c.Increaseinthesupplyofpesos

d.Decreaseinthesupplyofpesos

9.Adepreciationofthedollarreferstoa（an）:

a.Fallinthedollarpriceofforeigncurrency

b.Increaseinthedollarpriceofforeigncurrency

c.Lossofforeign-exchangereservesfortheU.S.

d.Interventionintheinternationalmoneymarket

10.IfCanadianspeculatorsbelievedtheSwissfrancwasgoingtoappreciateagainsttheU.S.dollar,theywould:

a.PurchaseCanadiandollars

b.PurchaseU.S.dollars

c.PurchaseSwissfrancs

d.SellSwissfrancs

11.Amajordifferencebetweenthespotmarketandtheforwardmarketisthatthespotmarketdealswith:

a.Theimmediatedeliveryofcurrencies

b.Themerchandisetradeaccount

c.Currenciestradedforfuturedelivery

d.Hedgingofinternationalcurrencyrisks

12.Theexchangerateiskeptthesameinallpartsofthemarketby:

a.Forwardcover

b.Hedging

c.Exchangespeculation

d.Exchangearbitrage

13.IfyouhaveacommitmenttopayafriendinBritain1,000poundsin30days,youcouldremovetheriskoflossduetotheappreciationofthepoundby:

a.Buyingdollarsintheforwardmarketfordeliveryin30days

b.Sellingdollarsintheforwardmarketfordeliveryin30days

c.Buyingthepoundsintheforwardmarketfordeliveryin30days

d.Sellingthepoundsintheforwardmarketfordeliveryin30days

14.Anincreaseinthedollarpriceofothercurrenciestendstocause:

a.U.S.goodstobecheaperthanforeigngoods

b.U.S.goodstobemoreexpensivethanforeigngoods

c.Foreigngoodstobemoreexpensivetoresidentsofforeignnations

d.ForeigngoodstobecheapertoresidentsoftheUnitedStates

15.Thebalanceonmerchandisetrade:

a.Mustbenegative

b.Mustbepositive

c.Mustbezero

d.Maybenegative,positive,orzero

16.WhichofthefollowingwouldnotinducetheU.S.demandcurveforforeignexchangetoshiftbackwardtotheleft?

a.WorseningAmericantastesforgoodsproducedoverseas

b.DecreasinginterestratesintheU.S.comparedtothoseoverseas

c.AfallinthelevelofU.S.income

d.AdepreciationintheU.S.dollaragainstforeigncurrencies

17.AU.S.exportcompanyscheduledtoreceive1millionpoundssixmonthsfromtodaycanhedgeitsforeignexchangeriskby:

a.Buyingtoday1millionpoundsintheforwardmarketfordeliveryinsixmonths

b.Buying1millionpoundsinthespotmarketfordeliveryinsixmonths

c.Selling1millionpoundsinthespotmarketfordeliveryinsixmonths

d.Sellingtoday1millionpoundsintheforwardmarketfordeliveryinsixmonths

18.Overtime,adepreciationinthevalueofanation’scurrencyintheforeignexchangemarketwillresultin:

a.Exportsrisingandimportsfalling

b.Importsrisingandexportsfalling

c.Bothimportsandexportsrising

d.Bothimportsandexportsfalling

19.GrainshortagesincountriesthatbuylargeamountsofgrainfromtheUnitedStateswouldincreasethedemandforAmericangrainand:

a.Reducethedemandfordollars

b.Increasethedemandfordollars

c.Reducethesupplyofdollars

d.Increasethesupplyofdollars

20.SupposetheexchangeratebetweentheJapaneseyenandtheU.S.dollaris100yenperdollar.AJapanesestereowithapriceof60,000yenwillcost:

a.$60

b.$600

c.$6,000

d.Noneoftheabove

21.Thesupplyofforeigncurrencymaybe:

a.Upward-sloping

b.Backward-sloping

c.Vertical

d.Noneoftheabove

22.SupposethataSwisswatchthatcosts400francsinSwitzerlandcosts$200intheUnitedStates.Theexchangeratebetweenthefrancandthedollaris:

a.2francsperdollar

b.1francperdollar

c.$2perfranc

d.$3perfranc

23.Intheearly1980s,theFederalReservepursuedatightmonetarypolicy.Allelsebeingequal,theimpactofthatpolicywasto__________interestratesintheUnitedStatesrelativetothoseinEuropeandcausethedollarto__________againstEuropeancurrencies.

a.Decrease,depreciate

b.Decrease,appreciate

c.Increase,depreciate

d.Increase,appreciate

24.Underasystemoffloatingexchangerates,theSwissfrancwoulddepreciateinvalueifwhichofthefollowingoccurs?

a.PriceinflationinFrance

b.AnincreaseinU.S.realincome

c.AdecreaseintheSwissmoneysupply

d.FallinginterestratesinSwitzerland

25.Adepreciationofthedollarwillhaveitsmostpronouncedimpactonimportsifthedemandforimportsis:

a.Constant

b.Inelastic

c.Elastic

d.Unitaryelastic

26.Duringtheeraofdollarappreciation,from1981to1985,amainreasonwhythedollardidnotfallinvaluewas:

a.FlowsofforeigninvestmentintotheUnitedStates

b.RisingpriceinflationintheUnitedStates

c.AsubstantialdecreaseinU.S.imports

d.AsubstantialincreaseinU.S.exports

27.Whichfinancialinstrumentprovidesabuyertherighttopurchaseorsellafixedamountofcurrencyataprearrangedprice,withinafewdaystoacoupleofyears?

a.Letterofcredit

b.Foreigncurrencyoption

c.Cabletransfer

d.Billofexchange

28.GiventheforeigncurrencymarketfortheSwissfranc,thesupplyoffrancsslopesupward,becauseasthedollarpriceofthefrancrises:

a.America’sdemandforSwissmerchandiserises

b.America’sdemandforSwissmerchandisefalls

c.Switzerland’sdemandforAmericanmerchandiserises

d.Switzerland’sdemandforAmericanmerchandisefalls

29.Inasupply-and-demanddiagramforJapaneseyen,withtheexchangerateindollarsperyenontheverticalaxis,thedemandscheduleforyenisdrawnsloping:

a.Upward

b.Vertical

c.Downward

d.Horizontal

30.SupposethereoccursanincreaseintheCanadiandemandforJapanesecomputers.Thisresultsin:

a.Anincreaseinthedemandforyen

b.Adecreaseinthedemandforyen

c.AnincreaseinthesupplyofyentoCanada

d.AdecreaseinthesupplyofyentoCanada

Table12.1givestheexchangeratequotationsfortheU.S.dollarandtheBritishpound.Answerthenextfourquestionsonthebasisofthisinformation.

Table12.1. ForeignExchangeQuotations

U.S.DollarEquivalentCurrencyperU.S.Dollar

TuesdayMondayTuesdayMonday

Britain（Pound）1.42701.4390.7008.6949

30-dayForward1.42111.4333.7037.6977

60-dayForward1.40901.4220.7097.7032

180-dayForward1.39301.4070.7179.7107

31.ConsiderTable12.1.Ifoneweretobuypoundsforimmediatedelivery,onTuesdaythedollarcostofeachpoundwouldbe:

a.$0.7008

b.$0.7037

c.$1.4211

d.$1.4270

32.ConsiderTable12.1.Ifoneweretoselldollarsforimmediatedelivery,onTuesdaythepoundcostofeachdollarwouldbe:

a..7008poundsperdollar

b..7037poundsperdollar

c.1.4270poundsperdollar

d.1.4211poundsperdollar

33.ConsiderTable12.1.ComparingTuesdaytothepreviousMonday,byTuesdaythedollarhad:

a.Depreciatedagainstthepound

b.Appreciatedagainstthepound

c.Notchangedagainstthepound

d.Noneoftheabove

34.ConsiderTable12.1.ConcerningtheTuesdayquotations:

comparedtothecostofbuying100poundsonthespotmarket,if100poundswereboughtforfuturedeliveryin