Multinational Business Finance, 13e (Eiteman/Stonehill/Moffett)
Chapter 6 The Foreign Exchange Theory and Markets
6.1 Geographical Extent of the Foreign Exchange Market
Multiple Choice
Question: Which of the following is NOT true regarding the market for foreign exchange?
A) The market provides the physical and institutional structure through which the money
of one country is exchanged for another.
B) The rate of exchange is determined in the market.
C) Foreign exchange transactions are physically completed in the foreign exchange
market.
D) All of the above are true.
Answer: View Answer
Question: A/An ________ is an agreement between a buyer and seller that a fixed amount
of one currency will be delivered at a specified rate for some other currency.
A) Eurodollar transaction
B) import/export exchange
C) foreign exchange transaction
D) interbank market transaction
Answer: View Answer
Question: While trading in foreign exchange takes place worldwide, the major currency
trading centers are located in:
A) London, New York, and Tokyo.
B) New York, Zurich, and Bahrain.
C) Paris, Frankfurt, and London.
D) Los Angeles, New York, and London.
Answer: View Answer
Question: Because the market for foreign exchange is worldwide, the volume of foreign
exchange currency transactions is level throughout the 24-hour day.
Answer: View Answer
Question: Business firms in countries with exchange controls, for example, China
(mainland), often must surrender foreign exchange earned from exports to the central bank
at the daily fixing price.
Answer: View Answer
Question: Define spot, forward, and swap transactions in the foreign exchange market and
give an example of how each could be used.
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Question: The ________ is the mechanism by which participants transfer purchasing
power between countries, obtain or provide credit for international trade transactions, and
minimize exposure to the risks of exchange rate changes.
A) futures market
B) federal open market
C) foreign exchange market
D) LIBOR
Answer: View Answer
Question: Which of the following is NOT a motivation identified by the authors as a
function of the foreign exchange market?
A) the transfer of purchasing power between countries
B) obtaining or providing credit for international trade transactions
C) minimizing the risks of exchange rate changes
D) All of the above were identified as functions of the foreign exchange market.
Answer: View Answer
Question: Foreign exchange markets are a relatively recent phenomenon, beginning with
the agreement at Bretton Woods.
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Question: The authors identify two tiers of foreign exchange markets:
A) bank and nonbank foreign exchange.
B) commercial and investment transactions.
C) interbank and client markets.
D) client and retail market.
Answer: View Answer
Question: It is characteristic of foreign exchange dealers to:
A) bring buyers and sellers of currencies together but never to buy and hold an inventory
