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29) The ________ helps consumers compare the relative prices of goods and services in different
countries.
A) interest rate
B) GDP growth rate
C) exchange rate
D) tariff rate
30) An American company today invests some of its spare cash in a Hungarian money market
account that will earn 8 percent for two months. Which of the following, if it happens during the
next two months, would imply that the company will earn less than 8 percent on its investment?
A) The Hungarian forint rises in value against the dollar.
B) Interest rates in the United States move down.
C) Short-term interest rates in Hungarian money markets shoot up.
D) The dollar appreciates against the Hungarian forint.
31) International businesses use foreign exchange markets for many reasons. Which of the
following is one of these reasons?
A) to receive payments from domestic investors that are in local currencies
B) to pay a foreign company for its products or services in its native country's currency
C) to invest for short terms in money markets when they have spare cash
D) to cover themselves from all risks involved in currency speculation
32) Which term refers to the rate at which one currency is converted into another?
A) basis point
B) spread
C) exchange rate
D) interchange rate
33) The short-term movement of funds from one currency to another in the hopes of profiting from
shifts in exchange rates is known as
A) currency arbitrage.
B) currency speculation.
C) currency hedging.
D) currency risk mitigation.
34) Which of the following involves borrowing in one currency where interest rates are low, and
then using the proceeds to invest in another currency where interest rates are high?
A) carry trade
B) swing trade
C) channel trade
D) price action trade
35) Assume that the interest rate on borrowing in Japan is 1 percent, while the interest rate on
deposits in Australian banks is 5 percent. A trader borrows in yen and then converts the money into
Australian dollars and deposits it in an Australian bank to make a 4 percent margin. Which type of
trade is this an example of?
A) swing trade
B) carry trade
C) channel trade
D) price action trade
36) When a tourist goes to a bank in a foreign country to convert money into the local currency, the
exchange rate used is the
A) currency swap rate.
B) forward rate.
C) carry trade.
D) spot rate.
37) ________ are reported on a real-time basis on many financial websites and are continually
changing—their value being determined by supply and demand for that currency relative to others.
A) Spot exchange rates
B) Currency swaps
C) Forward exchange rates
D) Future exchange rates
38) When two parties agree to exchange currency and execute the deal immediately, the
transaction is a
A) futures exchange.
B) carry trade.
C) spot exchange.
D) forward exchange.
39) The ________ is the rate at which a foreign exchange dealer converts one currency into
another currency on a particular day.
A) spot exchange rate
B) forward exchange rate
C) futures exchange rate
D) spread
40) Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars,
you will receive
A) $1,000.
B) $750.
C) $1,500.
D) $667.
41) ________ are exchange rates governing some specific future date foreign exchange
transactions.
A) Spot exchange rates
B) Forward exchange rates
C) Future exchange rates
D) Currency swaps
42) Assuming the 30-day forward exchange rate was $1 = 130 and the spot exchange rate was $1 =
×120, the dollar is selling at a ________ on the 30-day forward market.
A) premium
B) margin
C) discount
D) subsidy
43) Which of the following refers to the simultaneous purchase and sale of a given amount of
foreign exchange for two different value dates?
A) currency pairing
B) carry trade
C) currency exchange
D) currency swap
44) Which of the following is the most important foreign exchange trading center?
A) London
B) New York
C) Tokyo
D) Singapore
45) Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m. is ¥120 = $1, and the
yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1. A dealer in New York
uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby
making a profit. The dealer has engaged in
A) a currency swap.
B) an arbitrage.
C) an carry trade.
D) a straddle.
46) ________ is quoted for 30 days, 90 days, and 180 days into the future.
A) A forward exchange rate
B) A currency swap
C) A spot exchange rate
D) An arbitrage
47) When two parties agree to exchange currency and execute the deal at some specific time in the
future, a ________ occurs.
A) currency swap
B) forward exchange
C) hedging
D) spot exchange
48) Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the
expectations of the foreign exchange market about
A) anticipated currency swap rates.
B) stability in the global marketplace.
C) future currency movements.
D) the carry trades that will occur.
