36. A(n) _____ refers to the rate at which one currency is converted into another.
37. Which of the following enables organizations to conduct international trade without
having to resort to barter?
38. The currency of Venadia, a country, falls sharply in value against the currency of Lutetia,
a neighboring country. Which of the following is a consequence of this exchange rate
movement?
39. Which of the following is a function of the foreign exchange market?
40. _____ refers to the adverse consequences of unpredictable changes in exchange rates.
41. Steven converted $1,000 to ¥105,000 for a trip to Japan. However, he spent only ¥50,000.
During this period, the value of the dollar weakened against the yen. Considering a current
exchange rate of $1=¥100, how many dollars did Steven spend on the trip?
42. A French company wants to invest 20 million euros for three months. The company found
that investing in a Thai money market account will give it a higher interest rate than domestic
investments. Which of the following is true about this investment?
43. Which of the following refers to currency speculation?
44. Robben Inc. converts $1,000,000 into euros when the exchange rate is $1 = €0.75. After
three months, the company converts this back into dollars when the exchange rate is $1 = €0.80.
Which of the following is the outcome of this transaction?
45. Which of the following refers to carry trade?
46. The interest rate on borrowings in Rhodia is 2 percent and the interest rate on bank
deposits in Maritia is 7.5 percent. In this scenario, a carry trade would be to:
47. Carry trade, a kind of speculation, takes advantage of the:
48. The speculative element of the carry trade is that its success is based upon a belief
that:
49. Which of the following caused a decline in the dollar-yen carry trade during 2008-09?
50. When a firm insures itself against foreign exchange risk, it is said to be engaging in
_____.
51. When two parties agree to exchange currency and execute the deal immediately, the
transaction is referred to as _____.
52. How are spot exchange rates determined?
53. An American company imports laptop computers from Japan. The company knows that
after a shipment arrives, it must pay in yen to the Japanese supplier within 30 days. In a
particular exchange, the American company must pay the Japanese supplier ¥150,000 for each
computer at the current dollar/yen spot exchange rate of $1 = ¥110. The company intends
to resell the computers the day they arrive for $1,600 each but it does not have the funds to pay
the Japanese supplier until the computers have been sold. Which of the following will happen if
the exchange rate after 30 days is $1 = ¥90?
54. A U.S. company that imports laptop computers from Japan knows that in 30 days it must
pay in yen to a Japanese supplier when a shipment arrives. The company will pay the Japanese
supplier ¥150,000 for each computer, and the current dollar/yen spot exchange rate is $1 = ¥110.
The importer can sell the computers the day they arrive for $1,600 each. However, the importer
will not have the funds to pay the Japanese supplier until the computers have been sold. The
importer enters into a 30-day forward exchange transaction with a foreign exchange dealer at $1
= ¥105. Which of the following will happen if the exchange rate after 30 days is $1 = ¥90?
55. A(n) _____ occurs when two parties agree to exchange currency and execute the deal at
some specific date in the future.