Foreign Exchange Derivative Markets

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Question 1
Free
Multiple Choice

At any given point in time, the price at which banks will buy a currency is ____ the price at which they sell it.

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A

higher than

B

lower than

C

the same as

D

none of the above

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Question 2
Free
Multiple Choice

Which of the following are most likely to provide currency forward contracts to their customers?

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A

commercial banks

B

international mutual funds

C

brokerage firms

D

insurance companies

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Question 3
Free
Multiple Choice

The Bretton Woods era was the era

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A

of free-floating exchange rates.

B

of floating rates without boundaries, but subject to government intervention.

C

in which governments maintained exchange rates within 1 percent of a specified rate.

D

in which exchange rates were maintained within 10 percent of a specified rate.

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Question 4
Free
Multiple Choice

A system whereby exchange rates are market determined without boundaries but subject to government intervention is called

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A

a dirty float.

B

a free float.

C

the gold standard.

D

the Bretton Woods era.

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Question 5
Free
Multiple Choice

If the demand for British pounds ____ , the pound will ____ , other things being equal.

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A

increases; appreciate

B

decreases; appreciate

C

increases; depreciate

D

B and C

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Question 6
Multiple Choice

____ in the supply of euros for sale will cause the euro to ____ .

Choose correct answer/s
A
increase; appreciate
B
increase; depreciate
C
decrease; depreciate
D
none of the above
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Question 7
Multiple Choice

Purchasing power parity suggests that the exchange rate will on average change by a percentage that reflects the ____ differential between two countries.

Choose correct answer/s
A
income
B
interest rate
C
inflation
D
tax
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Question 8
Multiple Choice

S. interest rates suddenly become much higher than European interest rates (and if this does not cause concern about higher inflation in the United States), the U.S. demand for euros would ____ , and the supply of euros to be exchanged for dollars would ____ , other factors held constant.

Choose correct answer/s
A
increase; increase
B
increase; decrease
C
decrease; increase
D
decrease; decrease
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Question 9
Multiple Choice

When a government influences factors, such as inflation, interest rates, or income, in order to affect currency's value, this is an example of

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A
direct intervention.
B
indirect intervention.
C
a freely floating system.
D
a pegged system.
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Question 10
Multiple Choice

Which of the following statements is incorrect?

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A
Central banks often consider adjusting a currency's value to influence economic conditions.
B
If the U.S. central bank wishes to stimulate the economy, it could weaken the dollar.
C
A weaker dollar could cause U.S. inflation by reducing foreign competition.
D
Direct intervention occurs when the central bank influences the factors that determine the dollar's value.
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Question 11
Multiple Choice

If the U.S. government imposed trade restrictions on U.S. imports, this would ____ the U.S. demand for foreign currencies and would place ____ pressure on the values of foreign currencies (withrespect to the dollar).

Choose correct answer/s
A
increase; upward
B
increase, downward
C
limit; upward
D
limit; downward
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Question 12
Multiple Choice

If a commercial bank expects the euro to appreciate against the dollar, it may take a ____ position in euros and a ____ position in dollars.

Choose correct answer/s
A
short; short
B
long; short
C
short; long
D
long; long
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Question 13
Multiple Choice

Generally, a ____ home currency can ____ domestic economic growth.

Choose correct answer/s
A
weak; dampen
B
strong; stimulate
C
strong; dampen
D
A and B
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Question 14
Multiple Choice

If the forward rate of a foreign currency ____ the existing spot rate, the forward rate will exhibit a ____ .

Choose correct answer/s
A
exceeds; discount
B
is below; premium
C
is below; discount
D
A and B
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Question 15
Multiple Choice

____ forecasting involves the use of historical exchange rate data to predict future values.

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A
Technical
B
Fundamental
C
Market-based
D
Mixed
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Question 16
Multiple Choice

Which of the following is not a method of forecasting exchange rate volatility?

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A
using the volatility of historical exchange rate movements
B
using a time series of volatility patterns in previous periods
C
using the volatility of future exchange rate movements
D
using the exchange rate's implied standard deviation
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Question 17
Multiple Choice

A speculator who expects the euro to appreciate might:

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A
Purchase euros forward; when they are received, sell them in the spot market.
B
Sell euros forward, and then purchase them in the spot market just before fulfilling the forward obligation.
C
Sell futures contracts on euros, and then purchase euros in the spot market just before fulfilling the futures obligation.
D
all of the above
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Question 18
Multiple Choice

Which of the following statements is incorrect?

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A
Forward contracts are contracts typically negotiated with a commercial bank that allow the purchase or sale of a specified amount of a particular foreign currency at a specified exchange rate on a specified future date.
B
The forward market is located in New York City.
C
Many of the commercial banks that offer foreign exchange on a spot basis also offer forward transactions for the widely traded currencies.
D
Forward contracts can hedge a corporation's risk that a currency's value may appreciate over time.
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Question 19
Multiple Choice

If the spot rate of the British pound is $2, and the 180-day forward rate is $2.05, what is the annualized premium or discount?

Choose correct answer/s
A
2.5 percent discount
B
2.5 percent premium
C
10 percent premium
D
5 percent discount
E
5 percent premium
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Question 20
Multiple Choice

Currency futures contracts differ from forward contracts in that they

Choose correct answer/s
A
are an obligation.
B
are not an obligation.
C
are standardized.
D
can specify any amount and maturity date.
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