Chapter 16: Foreign Exchange Derivative Markets
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1. At any given point in time, the price at which banks will buy a currency is ____ the price at which they sell it.
a.
higher than
b.
lower than
c.
the same as
d.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
2. Which of the following are most likely to provide currency forward contracts to their customers?
a.
b.
c.
d.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
3. The Bretton Woods era was the era
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.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
4. A system whereby exchange rates are market determined without boundaries but subject to government intervention is
called
a.
a dirty float.
b.
a free float.
c.
the gold standard.
Chapter 16: Foreign Exchange Derivative Markets
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d.
the Bretton Woods era.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
5. A country that pegs its currency is still able to maintain complete control over its local interest rates.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
6. If the demand for British pounds ____, the pound will ____, other things being equal.
a.
increases; appreciate
b.
decreases; appreciate
c.
increases; depreciate
d.
B and C
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
7. A(n) ____ in the supply of euros for sale will cause the euro to ____.
a.
increase; appreciate
b.
increase; depreciate
c.
decrease; depreciate
d.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
Chapter 16: Foreign Exchange Derivative Markets
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Page 4
b.
indirect intervention.
c.
a freely floating system.
d.
a pegged system.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
12. Which of the following statements is incorrect?
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.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
13. Direct intervention is always extremely effective.
a.
True
b.
False
ANSWER:
b
POINTS:
1
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
14. 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 (with respect to the dollar).
a.
increase; upward
b.
increase, downward
c.
limit; upward
d.
limit; downward
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
Chapter 16: Foreign Exchange Derivative Markets
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a.
Technical
b.
Fundamental
c.
Market-based
d.
Mixed
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
19. Fundamental forecasting has been found to be consistently superior to the other forecasting techniques.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
20. Which of the following is not a method of forecasting exchange rate volatility?
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
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
21. A speculator who expects the euro to appreciate might:
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
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Application
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Page 7
22. Which of the following statements is incorrect?
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.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
23. 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?
a.
2.5 percent discount
b.
2.5 percent premium
c.
10 percent premium
d.
5 percent discount
e.
5 percent premium
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Application
24. Currency futures contracts differ from forward contracts in that they
a.
are an obligation.
b.
are not an obligation.
c.
are standardized.
d.
can specify any amount and maturity date.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
Chapter 16: Foreign Exchange Derivative Markets
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b.
put option; decreases
c.
call option; increases
d.
futures contract; increases
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
29. According to interest rate parity, if the interest rate in a foreign country is ____ than in the home country, the forward
rate of the foreign country will have a ____.
a.
higher; discount
b.
lower; premium
c.
higher; premium
d.
A and B
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
30. ____ serve as financial intermediaries in the foreign exchange market by buying or selling currencies to accommodate
customers.
a.
Pension funds
b.
International mutual funds
c.
Insurance companies
d.
Commercial banks
e.
None of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
31. In the Wall Street Journal, you observe that the British pound (£) is quoted at $1.65. The Australian dollar (A$) is
quoted at $0.60. What is the value of the Australian dollar in British pounds?
a.
A$2.75
b.
A$0.36
c.
£2.75
d.
£0.36
Chapter 16: Foreign Exchange Derivative Markets
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e.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Application
32. If European inflation suddenly becomes much higher than U.S. inflation, the U.S. demand for European goods will
____. In addition, the supply of euros to be sold for dollars will ____; both forces will place ____ pressure on the value of
the euro.
a.
increase; decline; upward
b.
increase; decline; downward
c.
decrease; increase; upward
d.
decrease; increase; downward
e.
none of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
33. Assume the following information.
•
Interest rate on borrowed euros is 5 percent annualized.
•
Interest rate on dollars loaned out is 6 percent annualized.
•
Spot rate is 1.10 euros per dollar (one euro = $0.909).
•
Expected spot rate in five days is 1.15 euros per dollar.
•
Fabrizio Bank can borrow 10 million euros.
If Fabrizio Bank attempts to capitalize on the above information, its profit over the five-day period is
a.
2,653,597.22 euros.
b.
455,266.81 euros.
c.
452,426.04 euros.
d.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Application
Chapter 16: Foreign Exchange Derivative Markets
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34. A country that pegs its exchange rate to another exchange rate does not have complete control over its interest rates.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
35. The euro is presently pegged to the British pound in order to stabilize international payments between European
countries.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
36. Financial institutions rarely use the forward market.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
37. If the quoted cross-exchange rate between two foreign currencies is not aligned with the two corresponding exchange
rates, investors can profit from triangular arbitrage.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
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Page 12
38. The indirect exchange rate specifies the value of the currency in U.S. dollars.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
39. The forward rate premium is dictated by the national income differential of the two currencies.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
40. The potential benefits from using foreign exchange derivatives are independent of the expected exchange rate
movements.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
41. The forward rate is the exchange rate for immediate delivery.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
Chapter 16: Foreign Exchange Derivative Markets
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Page 13
42. The Smithsonian Agreement allowed for a devaluation of the dollar and for a widening of the boundaries within which
currencies were allowed to fluctuate.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
43. The European Central Bank is responsible for setting fiscal policy for all countries in the eurozone.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
44. Exchange rates usually change precisely as suggested by the purchasing power parity (PPP) theory.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
45. Central bank intervention can be overwhelmed by market forces and may not always succeed in reversing exchange
rate movements.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
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Page 14
46. When countries experience substantial net outflows of funds, they commonly use indirect intervention by raising
interest rates to discourage excessive outflows of funds and therefore limit any downward pressure on the value of their
currency.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
47. The forward rate premium reflects the percentage by which the spot rate exceeds the forward rate on an annualized
basis.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
48. The primary advantage of currency options over forward and futures contracts is that they provide a right rather than
an obligation to purchase or sell a particular currency at a specified price within a given period.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
49. A speculator who expects a foreign currency to appreciate could purchase the currency forward and, when received,
sell it in the spot market.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
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50. The following information refers to Fresno Bank and Champaign Bank.
Bid Rate on Euros
Ask Rate on Euros
Fresno Bank
$1.002
$1.009
Champaign Bank
$0.997
$1.000
Based on this information, locational arbitrage would be profitable.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Application
51. Purchasing power parity suggests that the forward rate premium (or discount) should be about equal to the differential
in interest rates between the countries of concern.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
52. ____ are not foreign exchange derivatives.
a.
Forward contracts
b.
Currency futures contracts
c.
Currency swaps
d.
Currency options
e.
All of the above are foreign exchange derivatives.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
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Page 16
53. Which of the following is typically used as the basis of a market-based forecast?
a.
the currency’s spot rate
b.
a time-series model showing the currency’s moving average
c.
the currency’s volatility index
d.
the currency’s forward rate
e.
A and D
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
54. In the Wall Street Journal, you observe that the British pound (£) is quoted for $1.67. The Australian dollar (A$) is
quoted for $0.62. What is the value of the Australian dollar in British pounds?
a.
A$2.69
b.
£0.37
c.
£2.69
d.
A$0.37
e.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Application
55. In a(n) ____ exchange rate system, the foreign exchange market is totally free from government intervention.
a.
pegged
b.
dirty floating
c.
freely floating
d.
Bretton Woods
e.
none of the above
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge
Copyright Cengage Learning. Powered by Cognero.
Page 17
56. The supply and demand for a currency are influenced by all of the following, except
a.
differential interest rates.
b.
differential inflation rates.
c.
direct government intervention.
d.
indirect government intervention.
e.
The supply and demand for a currency are affected by all of the above.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
57. If U.S. inflation suddenly becomes much higher than European inflation, the U.S. demand for European goods will
____. In addition, the supply of euros to be sold for dollars will ____; both forces will place ____ pressure on the value of
the euro.
a.
increase; decline; upward
b.
increase; decline; downward
c.
decrease; increase; upward
d.
decrease; increase; downward
e.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
58. Assume an equilibrium state in which European inflation and U.S. inflation are both 4 percent. If U.S. inflation
suddenly decreases to 2 percent, the euro will ____ against the dollar by approximately ____ percent, according to
purchasing power parity.
a.
appreciate; 2
b.
depreciate; 2
c.
appreciate; 4
d.
depreciate; 4
e.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
Chapter 16: Foreign Exchange Derivative Markets
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Page 19
c.
can lead to deflation in that country.
d.
A and B
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
63. Currency futures contracts are standardized, whereas forward contracts are more flexible and can specify whatever
amount and maturity date are desired.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Comprehension
64. When the Federal Reserve attempts to lower interest rates by increasing the U.S. money supply and has no impact on
inflationary expectations, it puts upward pressure on the value of the dollar.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.16.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.10
KEYWORDS:
Bloom’s: Knowledge