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International Financial Management, 8e (Eun)
1) The world's largest foreign exchange trading center is
A) New York.
B) Tokyo.
C) London.
D) Hong Kong.
2) On average, worldwide daily trading of foreign exchange is closest to
A) $100 million.
B) $15 billion.
C) $504 billion.
D) $5 trillion.
3) The foreign exchange market closes
A) never.
B) 4:00 p.m. EST (New York time).
C) 4:00 p.m. GMT (London time).
D) 4:00 p.m. (Tokyo time).
4) Most foreign exchange transactions are for
A) intervention by central banks.
B) interbank trades between international banks or nonbank dealers.
C) retail trade.
D) purchase of hard currencies.
5) The difference between a broker and a dealer is
A) dealers sell drugs; brokers sell houses.
B) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy and
sell from their inventory.
C) brokers transact in stocks and bonds; currency is bought and sold through dealers.
D) none of the options
6) Most interbank trades are
A) speculative or arbitrage transactions.
B) simple order processing for the retail client.
C) overnight loans from one bank to another.
D) brokered by dealers.
7) At the wholesale level,
A) most trading takes place OTC between individuals on the floor of the exchange.
B) most trading takes place over the phone.
C) most trading flows over Reuters and EBS platforms.
D) most trading flows through specialized "broking" firms.
8) Intervention in the foreign exchange market is the process of
A) a central bank requiring the commercial banks of that country to trade at a set price level.
B) commercial banks in different countries coordinating efforts in order to stabilize one or more
currencies.
C) a central bank buying or selling its currency in order to influence its value.
D) the government of a country prohibiting transactions in one or more currencies.
9) The standard size foreign exchange transactions are for
A) $10 million USD.
B) $1 million USD.
C) €1 million.
D) none of the options
10) Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in
euros, at a cost of €512,100. The U.S. importer will contact his U.S. bank (where of course he has
an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank
quotes as €1.0242/$1.00. The importer accepts this price, so his bank will ________ the importer's
account in the amount of ________.
A) debit; $500,000
B) debit; $524,492
C) credit; $500,000
D) debit; €512,100
11) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from
a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will fall by $90,000.
B) Bank B's dollar-denominated account at A will rise by $90,000.
C) Bank A's pound-denominated account at B will rise by £45,000.
D) Bank B's pound-denominated account at A will fall by £45,000.
E) all of the options
12) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from
a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will rise by $90,000.
B) Bank B's dollar-denominated account at A will fall by $90,000.
C) Bank A's pound-denominated account at B will rise by £45,000.
D) Bank B's pound-denominated account at A will rise by £45,000.
13) The current exchange rate is €1.00 = $1.50. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys €100,000
from a currency trader at Bank B for $150,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will fall by $150,000.
B) Bank B's dollar-denominated account at A will fall by $150,000.
C) Bank A's pound-denominated account at B will fall by €100,000.
D) Bank B's pound-denominated account at A will rise by €100,000.
14) The spot market
A) involves the almost-immediate purchase or sale of foreign exchange.
B) involves the sale of futures, forwards, and options on foreign exchange.
C) takes place only on the floor of a physical exchange.
D) all of the options
15) Spot foreign exchange trading
A) accounted for about 5 percent of all foreign exchange trades in 2013.
B) accounted for about 20 percent of all foreign exchange trades in 2013.
C) accounted for about 40 percent of all foreign exchange trades in 2013.
D) accounted for about 70 percent of all foreign exchange trades in 2013.
16)
Country
U.S. $ equiv.
Currency per U.S. $
Tuesday
Monday
Tuesday
Monday
Britain (Pound) £62,500
1.6000
1.6100
0.6250
0.6211
1 Month Forward
1.6100
1.6300
0.6211
0.6173
3 Months Forward
1.6300
1.6600
0.6173
0.6024
6 Months Forward
1.6600
1.7200
0.6024
0.5814
12 Months Forward
1.7200
1.8000
0.5814
0.5556
Using the table shown, what is the most current spot exchange rate shown for British pounds? Use
a direct quote from a U.S. perspective.
A) $1.61 = £1.00
B) $1.60 = £1.00
C) $1.00 = £0.625
D) $1.72 = £1.00
17) Suppose that the current exchange rate is €0.80 = $1.00. The direct quote, from the U.S.
perspective is
A) €1.00 = $1.25.
B) €0.80 = $1.00.
C) £1.00 = $1.80.
D) none of the options
18) Suppose that the current exchange rate is €1.00 = $1.60. The indirect quote, from the U.S.
perspective is
A) €1.00 = $1.60.
B) €0.6250 = $1.00.
C) €1.60 = $1.00.
D) none of the options
19) Suppose that the current exchange rate is £1.00 = $2.00. The indirect quote, from the U.S.
perspective is
A) £1.00 = $2.00.
B) £1.00 = $0.50.
C) £0.50 = $1.00.
D) none of the options
20) Indirect exchange rate quotations from the U.S. perspective are
A) the price of one unit of the foreign currency in terms of the U.S. dollar.
B) the price of one U.S. dollar in the foreign currency.
21) It is common practice among currency traders worldwide to both price and trade currencies
against the U.S. dollar. In fact, 2013 BIS statistics indicate that about ________ of currency
trading in the world involves the U.S. dollar on one side of the transaction.
A) 87 percent
B) 75 percent
C) 45 percent
D) 15 percent
22) It is common practice among currency traders worldwide to both price and trade currencies
against the U.S. dollar. Consider a currency dealer who makes a market in 5 currencies against the
dollar. If he were to supply quotes for each currency in terms of all of the others, how many quotes
would he have to provide?
A) 36
B) 30
C) 60
D) 120
E) none of the options
23) The bid price
A) is the price that the dealer has just paid for something, his historical cost of the most recent
trade.
B) is the price that a dealer stands ready to pay.
C) refers only to auctions like eBay, not over-the-counter transactions with dealers.
D) is the price that a dealer stands ready to sell at.
24) Suppose the spot ask exchange rate, Sa($/£), is $1.90 = £1.00 and the spot bid exchange rate,
Sb($/£), is $1.89 = £1.00. If you were to buy $10,000,000 worth of British pounds and then sell
them five minutes later, how much of your $10,000,000 would be "eaten" by the bid-ask spread?
A) $1,000,000
B) $52,910
C) $100,000
D) $52,632
25) If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid
and ask prices are
A) €0.6667 and €0.6623.
B) $1.51 and $1.50.
C) €0.6623 and €0.6667.
D) cannot be determined with the information given.
26) In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing
spot currency quotations. Consider a $/£ bid-ask quote of $1.2519-$1.2523. The "big figure,"
assumed to be known to all traders is ________.
A) 1.2523
B) 1
C) 1.25
D) 23
27) In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing
spot currency quotations. Consider a $/£ bid-ask quote of $1.2519-$1.2523. The currency dealer
would likely quote that as ________.
A) 19-23
B) 23-19
C) 4 points
D) none of the options
28) In the Interbank market, the standard size of a trade among large banks in the major currencies
is
A) for the U.S.-dollar equivalent of $10,000,000,000.
B) for the U.S.-dollar equivalent of $10,000,000.
C) for the U.S.-dollar equivalent of $100,000.
D) for the U.S.-dollar equivalent of $1,000.
29) A dealer in British pounds who thinks that the pound is about to appreciate
A) may want to widen his bid-ask spread by raising his ask price.
B) may want to lower his bid price.
C) may want to lower his ask price.
D) none of the options
30) A dealer in British pounds who thinks that the pound is about to depreciate
A) may want to widen his bid-ask spread by raising his ask price and lowering his bid.
B) may want to lower both his bid price and his ask price.
C) may want to lower his ask price while raising his bid.
D) none of the options
31) A dealer in pounds who thinks that the exchange rate is about to increase in volatility
A) may want to widen his bid-ask spread.
B) may want to decrease his bid-ask spread.
C) may want to lower his ask price.
D) none of the options
32)
Country
U.S. $ equiv.
Currency per U.S. $
Tuesday
Monday
Tuesday
Monday
Britain (Pound) £62,500
2.0000
1.9800
0.5000
0.5051
1 Month Forward
2.0100
1.9900
0.4975
0.5025
3 Months Forward
2.0200
2.0000
0.4950
0.5000
6 Months Forward
2.0300
2.0100
0.4926
0.4975
12 Months Forward
2.0400
2.0200
0.4902
0.4950
Euro £62,500
1.5000
1.4800
0.6667
0.6757
1 Month Forward
1.5100
1.4900
0.6623
0.6711
3 Months Forward
1.5200
1.5000
0.6579
0.6667
6 Months Forward
1.5300
1.5100
0.6536
0.6623
12 Months Forward
1.5400
1.5200
0.6494
0.6579
Using the table shown, what is the spot cross-exchange rate between pounds and euro?
A) €1.00 = £0.75
B) £1.33 = €1.00
C) £1.00 = €0.75
D) none of the options
33) The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 =
$1.00. What is the euro-yen cross rate?
A) €125 = ¥1.00
B) €1.00 = ¥125
C) €1.00 = ¥0.80
D) none of the options
34) Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00. Calculate the
euro-pound crossrate.
A) £1 = €1.60
B) £1 = €0.625
C) £2.50 = €1
D) £1 = €2.50
35) The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$. The AUD/SF cross
exchange rate is ________.
A) 0.7813
B) 2.0000
C) 1.2800
D) 0.3500
36) Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00. Calculate the
euro-pound exchange rate.
A) €1.3333 = £1.00
B) £1.3333 = €1.00
C) €3.00 = £1
D) €1.25 = £1.00
37) Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00. Calculate the
euro-pound exchange rate.
A) €1.3333 = £1.00
B) £1.3333 = €1.00
C) €3.00 = £1
D) €1.25 = £1.00
38) Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00. Calculate the
euro-yen exchange rate.
A) ¥133.33 = €1.00
B) ¥1.00 = €180
C) ¥80 = €1.00
D) €1 = £2.50
39) Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90. Calculate the
euro-pound exchange rate.
A) €1.3103 = £1.00
B) £1.3333 = €1.00
C) €2.00 = £1
D) €3 = £1
40)
USD equivalent
Country
BID
ASK
Switzerland (Franc) CHF
0.7648
0.7652
Euro €
1.4000
1.4200
What is the BID cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a
currency dealer will pay in euro to buy Swiss francs.
A) €0.5386/CHF
B) €0.5389/CHF
C) €0.5463/CHF
D) €0.5466/CHF
41)
USD equivalent
Country
BID
ASK
Switzerland (Franc) CHF
0.7648
0.7652
Euro €
1.4000
1.4200
What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a
currency dealer will take in euro to sell Swiss francs.
A) €0.5386/CHF
B) €0.5389/CHF
C) €0.5463/CHF
D) €0.5466/CHF
42) Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 =
€1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.
A) €1.25/£1.00
B) $1.25/£1.00
C) £1.25/€1.00
D) €0.80/£1.00
43)
USD equivalent
Country
BID
ASK
Canada (Dollar)
0.8653
0.8667
Euro €
1.4000
1.4200
What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that
a currency dealer will pay in euro to buy Canadian dollars.
A) €0.6094/CAD
B) €0.6104/CAD
C) €0.6181/CAD
D) €0.6191/CAD
44)
USD equivalent
Country
BID
ASK
Canada (Dollar)
0.8653
0.8667
Euro €
1.4000
1.4200
What is the ASK cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that
a currency dealer will take in euro to sell Canadian dollars.
A) €0.6094/CAD
B) €0.6104/CAD
C) €0.6181/CAD
D) €0.6191/CAD
45) Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 =
€1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120.
A) €192/¥1.00
B) €1.92/¥100
C) €1.25/¥1.00
D) €1.00/¥1.92
46) The euro-pound cross exchange rate can be computed as:
A) S(€/£) = S($/£) × S(€/$)
B) S(€/£) =
C) S(€/£) =
D) all of the options
47) Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.
A) In dealer jargon, this is a currency against currency trade.
B) The bank will frequently handle such a trade by selling British pounds for U.S. dollars and then
buying Swiss francs with U.S. dollars.
C) The bank would typically sell the British pounds directly for Swiss francs.
D) In dealer jargon, this is a currency against currency trade, and the bank will frequently handle
such a trade by selling British pounds for U.S. dollars and then buying Swiss francs with U.S.
dollars.
48) Including the transaction costs of the bid-ask spread, the euro-pound cross exchange rate for a
customer who wants to sell euro and buy pounds can be computed as
A) Sb(£/€) = Sb($/€) × Sb(£/$)
B) Sa(€/£) = Sa(€/$) × Sa($/£)
C) Sb(€/£) = Sb($/€) ×
D) all of the options
49) Suppose a bank customer with €1,000,000 wishes to trade out of euro and into Japanese yen.
The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is
quoted at $1.00 = ¥120. How many yen will the customer get?
A) ¥192,000,000
B) ¥5,208,333
C) ¥75,000,000
D) ¥5,208.33
50)
American Terms
European Terms
Bank Quotations
Bid
Ask
Bid
Ask
British pounds
$
1.9712
$
1.9717
£
0.5072
£
0.5073
Euros
$
1.4738
$
1.4742
€
0.6783
€
0.6785
Using the table above, what is the bid price of pounds in terms of euro?
A) €1.3371/£
B) €1.3378/£
C) £0.7475/€
D) £0.7479/€
51)
American Terms
European Terms
Bank Quotations
Bid
Ask
Bid
Ask
British pounds
$
1.9712
$
1.9717
£
0.5072
£
0.5073
Euros
$
1.4738
$
1.4742
€
0.6783
€
0.6785
Using the table above, what is the ask price of pounds in terms of euro?
A) €1.3371/£
B) €1.3378/£
C) £0.7475/€
D) £0.7479/€
52)
American Terms
European Terms
Bank Quotations
Bid
Ask
Bid
Ask
British pounds
$
1.9712
$
1.9717
£
0.5072
£
0.5073
Euros
$
1.4738
$
1.4742
€
0.6783
€
0.6785
Using the table above, what is the bid price of euro in terms of pounds?
A) €1.3371/£
B) €1.3378/£
C) £0.7475/€
D) £0.7479/€
53)
American Terms
European Terms
Bank Quotations
Bid
Ask
Bid
Ask
British pounds
$
1.9712
$
1.9717
£
0.5072
£
0.5073
Euros
$
1.4738
$
1.4742
€
0.6783
€
0.6785
Using the table above, what is the ask price of euro in terms of pounds?
A) €1.3371/£
B) €1.3378/£
C) £0.7475/€
D) £0.7479/€
54) Suppose you observe the following exchange rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00.
Starting with $1,000,000, how can you make money?
A) Exchange $1m for £625,000 at £1 = $1.60. Buy €1,250,000 at €2 = £1.00; trade for $1,062,500
at €1 = $.85.
B) Start with dollars, exchange for euros at €1 = $.85; exchange for pounds at €2.00 = £1.00;
exchange for dollars at £1 = $1.60.
C) Start with euros; exchange for pounds; exchange for dollars; exchange for euros.
D) No arbitrage profit is possible.
55) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is
quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 = £1.00. If a bank
quotes you a cross rate of £1.00 = €1.50, how much money can an astute trader make?
A) No arbitrage is possible
B) $1,160,000
C) $500,000
D) $250,000
56) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is
quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank
quotes you a cross rate of £1.00 = €1.20 how much money can an astute trader make?
A) No arbitrage is possible
B) $1,160,000
C) $41,667
D) $40,000
57) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is
quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank
quotes you a cross rate of £1.00 = €1.20 how can you make money?
A) No arbitrage is possible
B) Buy euro at $1.60/€, buy £ at €1.20/£, sell £ at $2/£
C) Buy £ $2/£, buy € at €1.20/£, sell € at $1.60/€
D) none of the options
58) The Singapore dollar—U.S. dollar (S$/$) spot exchange rate is S$1.60/$, the Canadian
dollar—U.S. dollar (CD/$) spot rate is CD1.33/$ and the S$/CD1.15. Determine the triangular
arbitrage profit that is possible if you have $1,000,000.
A) $44,063 profit
B) $46,093 loss
C) No profit is possible
D) $46,093 profit
59) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is
quoted as $1.50 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank
quotes you a cross rate of £1.00 = €1.25 how can you make money?
A) No arbitrage is possible.
B) Buy euro at $1.50/€, buy £ at €1.25/£, sell £ at $2/£.
C) Buy £ $2/£, buy € at €1.25/£, sell € at $1.50/€.
D) none of the options
60) Market microstructure refers to
A) the basic mechanics of how a marketplace operates.
B) the basics of how to make small (micro-sized) currency trades.
C) how macroeconomic variables such as GDP and inflation are determined.
D) none of the options
61) A recent survey of U.S. foreign exchange traders measured traders' perceptions about how fast
news events that cause movements in exchange rates actually change the exchange rate. The
survey respondents claim that the bulk of the adjustment to economic announcements regarding
unemployment, trade deficits, inflation, GDP, and the Federal funds rate takes place within
A) ten seconds.
B) one minute.
C) five minutes.
D) one hour.
62) The forward price
A) may be higher than the spot price.
B) may be the same as the spot price.
C) may be less than the spot price.
D) all of the options
63) Relative to the spot price, the forward price is
A) usually less than the spot price.
B) usually more than the spot price.
C) usually equal to the spot price.
D) usually less than or more than the spot price more often than it is equal to the spot price.
64) For a U.S. trader working in American quotes, if the forward price is higher than the spot price
A) the currency is trading at a premium in the forward market.
B) the currency is trading at a discount in the forward market.
C) then you should buy at the spot, hold on to it and sell at the forward—it's a built-in arbitrage.
D) All of the options—it really depends if you're talking American or European quotes.
65) The forward market
A) involves contracting today for the future purchase of sale of foreign exchange at the spot rate
that will prevail at the maturity of the contract.
B) involves contracting today for the future purchase of sale of foreign exchange at a price agreed
upon today.
C) involves contracting today for the right but not obligation to the future purchase of sale of
foreign exchange at a price agreed upon today.
D) none of the options
66) The $/CD spot bid-ask rates are $0.7560–$0.7625. The 3-month forward points are 12–16.
Determine the $/CD 3-month forward bid-ask rates.
A) $0.7548–$0.7609
B) $0.7572–$0.7641
C) $0.7512–$0.7616
D) Cannot be determined with the information given.
