13) A contract to deliver dollars for euros in six months is both “buying euros forward for
dollars” and “selling dollars forward for euros.”
14) Define spot, forward, and swap transactions in the foreign exchange market and give an
example of how each could be used.
1) Daily trading volume in the foreign exchange market was about ________ per ________ in
2013.
A) $5,300 billion; month
B) $3,300 billion; month
C) $5,300 billion; day
D) $3,300 billion; day
2) The greatest volume of daily foreign exchange transactions are:
A) spot transactions.
B) forward transactions.
C) swap transactions.
D) This question is inappropriate because the volume of transactions are approximately equal
across the three categories above.
3) The United Kingdom and United States together make up nearly ________ of daily currency
trading.
A) 30%
B) 40%
C) 50%
D) 60%
4) The top three currency pairs traded with the U.S. dollar are:
A) U.K. pound, Chinese Yuan, Japanese yen.
B) Swiss franc, euro, Japanese yen.
C) U.K. pound, euro, Japanese yen.
D) euro, Chinese Yuan, Japanese yen.
5) The greatest amount of foreign exchange trading takes place in the following three cities:
A) New York, London, and Tokyo.
B) New York, Singapore, and Zurich.
C) London, Frankfurt, and Paris.
D) London, Tokyo, and Zurich.
6) The four currencies that constitute about 80% of all foreign exchange trading are:
A) U.K pound, Chinese yuan, euro, and Japanese yen.
B) U.S. dollar, euro, Chinese yuan, and U.K. pound.
C) U.S. dollar, Japanese yen, euro, and U.K. pound.
D) U.S. dollar, U.K. pound, yen, and Chinese yuan.
7) As you might expect, the foreign exchange daily trading volume in in New York City is
roughly twice as large as the daily trading volume in London.
8) The low level of interest rates around the globe in recent years, combined with slowing
economic growth and new debt issuances, has had a dampening impact on the swap market.
9) Since the global financial crisis of 2008-2009, the Chinese renminbi (yuan) has become the
most widely traded currency with the U.S. dollar surpassing the euro, yen, and pound as dollar
trading pairs.
10) Swap and forward transactions account for an insignificant portion of the foreign exchange
market.
14
Copyright © 2016 Pearson Education, Inc.
5.5 Foreign Exchange Rates and Quotations
1) A foreign exchange ________ is the price of one currency expressed in terms of another
currency. A foreign exchange ________ is a willingness to buy or sell at the announced rate.
A) quote; rate
B) quote; quote
C) rate; quote
D) rate; rate
2) Most foreign exchange transactions are through the U.S. dollar. If the transaction is expressed
as the foreign currency per dollar this known as ________ whereas ________ are expressed as
dollars per foreign unit.
A) European terms; indirect
B) American terms; direct
C) American terms; European terms
D) European terms; American terms
3) The following is an example of an American term foreign exchange quote:
A) $20/£
B) €0.85/$
C) ¥100/€
D) none of the above
4) From the viewpoint of a British investor, which of the following would be a direct quote in the
foreign exchange market?
A) SF2.40/£
B) $1.50/£
C) £0.55/€
D) $0.90/€
5) A/an ________ quote in the United States would be foreign units per dollar, while a/an
________ quote would be in dollars per foreign currency unit.
A) direct; direct
B) direct; indirect
C) indirect; indirect
D) indirect; direct
6) If the direct quote for a U.S. investor for British pounds is $1.43/£, then the indirect quote for
the U.S. investor would be ________ and the direct quote for the British investor would be
________.
A) £0.699/$; £0.699/$
B) $0.699/£; £0.699/$
C) £1.43/£; £0.699/$
D) £0.699/$; $1.43/£
7) ________ make money on currency exchanges by the difference between the ________ price,
or the price they offer to pay, and the ________ price, or the price at which they offer to sell the
currency.
A) Dealers; ask; bid
B) Dealers; bid; ask
C) Brokers; ask; bid
D) Brokers; bid; ask
TABLE 5.1
Use the table to answer following question(s).
8) Refer to Table 5.1. The current spot rate of dollars per pound as quoted in a newspaper is
________ or ________.
A) £1.4484/$; $0.6904/£
B) $1.4481/£; £0.6906/$
C) $1.4484/£; £0.6904/$
D) £1.4487/$; $0.6903/£
9) Refer to Table 5.1. The one-month forward bid price for dollars as denominated in Japanese
yen is:
A) -¥20.
B) -¥18.
C) ¥129.74/$.
D) ¥129.62/$.
10) Refer to Table 5.1. The ask price for the two-year swap for a British pound is:
A) $1.4250/£.
B) $1.4257/£.
C) -$230.
D) -$238.
11) Refer to Table 5.1. According to the information provided in the table, the 6-month yen is
selling at a forward ________ of approximately ________ per annum. (Use the mid rates to
make your calculations.)
A) discount; 2.09%
B) discount; 2.06%
C) premium; 2.09%
D) premium; 2.06%
12) Given the following exchange rates, which of the multiple-choice choices represents a
potentially profitable intermarket arbitrage opportunity?
¥129.87/$
€1.1226/$
€0.00864/¥
A) ¥115.69/€
B) ¥114.96/€
C) $0.8908/€
D) $0.0077/¥
13) The U.S. dollar suddenly changes in value against the euro moving from an exchange rate of
0.8909/€ to $0.8709/€. Thus, the dollar has ________ by ________.
A) appreciated; 2.30%
B) depreciated; 2.30%
C) appreciated; 2.24%
D) depreciated; 2.24%
14) A German firm is attempting to determine the euro/pound exchange rate and has the
following exchange rate information: USD/pound = $1.5509/£ and the USD/euro rate =
$1.2194/€. Therefore, the euro/pound rate must be:
A) £1.2719/€.
B) €1.2719/£.
C) €0.7316/£.
D) €0.7863/£.
15) The European and American terms for foreign currency exchange are square roots of one
another.
16) When the cross rate for currencies offered by two banks differs from the exchange rate
offered by a third bank, a triangular arbitrage opportunity exists.
17) A confusing “quirk” of international exchange rates occurs when calculating the percentage
change in spot rates from one period to another. The percent change in the spot rate from one
period to another when quoted using foreign currency terms is always greater than the percent
changes quoted when using home currency terms.
18) The most commonly quoted currency exchange is that between the U.S. dollar and the
European euro. For example, a quotation of EUR/USD 1.2174. The euro is the base currency and
the dollar the price currency.
19) Since in the U.S. the home currency is the dollar and the foreign currency is the euro, in New
York USD 1.2174 = EUR 1.00 would be a direct quote on the euro and an indirect quote on the
dollar.
20) A bid is the price in one currency at which a dealer will buy another currency. An ask is the
price at which a dealer will sell the other currency. Dealers bid (buy) at one price and ask (sell) at
a slightly higher price, making their profit from the spread between the prices. List and explain
three reasons/factors that could make the spread small.