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Page 1
1. Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days. You can remove
the risk of loss due to a devaluation of the pound sterling by:
a.
Selling sterling in the forward market for 60-day delivery
b.
Buying sterling now and selling it at the end of 60 days
c.
Selling the dollar equivalent in the forward market for 60-day delivery
d.
Keeping the sterling in Britain after it is delivered to you
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Forward and Futures Markets
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
2. Which of the following tends to cause the U.S. dollar to appreciate in value?
a.
An increase in U.S. prices above foreign prices
b.
Rapid economic growth in foreign countries
c.
A fall in U.S. interest rates below foreign levels
d.
An increase in the level of U.S. income
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Foreign Exchange Market
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
3. Concerning the covering of exchange market risks—assuming that a depreciation of the domestic currency is
anticipated, one can say that there is an incentive for:
a.
Exporters to rush to cover their future needs
b.
Importers to rush to cover their future needs
c.
Both exporters and importers to rush to cover their future needs
d.
Neither exporters nor importers to rush to cover their future needs
ANSWER:
b
POINTS:
1
DIFFICULTY:
Challenging
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Page 2
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Types of Foreign Exchange Transactions
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
4. When short-term interest rates become lower in Tokyo than in New York, interest arbitrage operations will most likely
result in a(n):
a.
Increase in the spot price of the yen
b.
Increase in the forward price of the dollar
c.
Sale of dollars in the forward market
d.
Purchase of yen in the spot market
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Types of Foreign Exchange Transactions
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
5. An appreciation in the value of the U.S. dollar against the British pound would tend to:
a.
Discourage the British from buying American goods
b.
Discourage Americans from buying British goods
c.
Increase the number of dollars that could be bought with a pound
d.
Discourage U.S. tourists from traveling to Britain
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Foreign-Exchange Market
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
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Page 3
6. Concerning the foreign exchange market, one can best say that:
a.
There is a spot market for virtually every currency in the world
b.
The market is highly centralized like the stock exchange
c.
Most foreign exchange payments are made with bank notes
d.
The values of the forward and spot rates are always in agreement
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Foreign-Exchange Market
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
7. Suppose researchers discover that Swiss beer causes cancer when given in large amounts to British mice. This finding
would likely result in a (an):
a.
Increase in the demand for Swiss francs
b.
Decrease in the demand for Swiss francs
c.
Increase in the supply of Swiss francs
d.
Decrease in the supply of Swiss francs
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
8. Suppose that real incomes increase more rapidly in the United States than in Mexico. In the United States, this situation
would likely result in a (an):
a.
Increase in the demand for pesos
b.
Decrease in the demand for pesos
c.
Increase in the supply of pesos
d.
Decrease in the supply of pesos
ANSWER:
a
POINTS:
1
Copyright Cengage Learning. Powered by Cognero.
Page 4
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
9. A depreciation of the dollar refers to:
a.
A fall in the dollar price of foreign currency
b.
An increase in the dollar price of foreign currency
c.
A loss of foreign-exchange reserves for the U.S.
d.
An intervention in the international money market
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
10. If Canadian speculators believed the Swiss franc was going to appreciate against the U.S. dollar, they would:
a.
Purchase Canadian dollars
b.
Purchase U.S. dollars
c.
Purchase Swiss francs
d.
Sell Swiss francs
ANSWER:
c
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Forward and Futures Markets
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
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Page 5
11. A major difference between the spot market and the forward market is that the spot market deals with:
a.
The immediate delivery of currencies
b.
The merchandise trade account
c.
Currencies traded for future delivery
d.
Hedging of international currency risks
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Forward and Futures Markets
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
12. The exchange rate is kept the same in all parts of the market by:
a.
Forward cover
b.
Hedging
c.
Exchange speculation
d.
Exchange arbitrage
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Arbitrage
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
13. If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days, you could remove the risk of loss due to
the appreciation of the pound by:
a.
Buying dollars in the forward market for delivery in 30 days
b.
Selling dollars in the forward market for delivery in 30 days
c.
Buying the pounds in the forward market for delivery in 30 days
d.
Selling the pounds in the forward market for delivery in 30 days
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
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Page 6
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Arbitrage
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
14. An increase in the dollar price of other currencies tends to cause:
a.
U.S. goods to be cheaper than foreign goods
b.
U.S. goods to be more expensive than foreign goods
c.
Foreign goods to be more expensive to residents of foreign nations
d.
Foreign goods to be cheaper to residents of the United States
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Foreign-Exchange Market
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
15. Which of the following would not induce the U.S. demand curve for foreign exchange to shift backward to the left?
a.
Worsening American tastes for goods produced overseas
b.
Decreasing interest rates in the U.S. compared to those overseas
c.
A fall in the level of U.S. income
d.
A depreciation in the U.S. dollar against foreign currencies
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
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Page 7
16. A U.S. export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange
risk by:
a.
Buying today 1 million pounds in the forward market for delivery in six months
b.
Buying 1 million pounds in the spot market for delivery in six months
c.
Selling 1 million pounds in the spot market for delivery in six months
d.
Selling today 1 million pounds in the forward market for delivery in six months
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Forward and Futures Markets
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
17. Over time, a depreciation in the value of a nation’s currency in the foreign exchange market will result in:
a.
Exports rising and imports falling
b.
Imports rising and exports falling
c.
Both imports and exports rising
d.
Both imports and exports falling
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Forward and Futures Markets
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
18. Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for
American grain and:
a.
Reduce the demand for dollars
b.
Increase the demand for dollars
c.
Reduce the supply of dollars
d.
Increase the supply of dollars
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
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Page 8
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
19. Suppose the exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. A Japanese stereo with
a price of 60,000 yen will cost:
a.
$60
b.
$600
c.
$6000
d.
None of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Foreign-Exchange Market
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
20. The supply of foreign currency may be:
a.
Upward-sloping
b.
Backward-sloping
c.
Vertical
d.
None of the above
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
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Page 9
21. Suppose that a Swiss watch that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate
between the franc and the dollar is:
a.
2 francs per dollar
b.
1 franc per dollar
c.
$2 per franc
d.
$3 per franc
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Foreign-Exchange Market
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
22. In the early 1980s, the Federal Reserve pursued a tight monetary policy. All else being equal, the impact of that policy
was to ____ interest rates in the United States relative to those in Europe and cause the dollar to ____ against European
currencies.
a.
Decrease, depreciate
b.
Decrease, appreciate
c.
Increase, depreciate
d.
Increase, appreciate
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
23. Under a system of floating exchange rates, the Swiss franc would depreciate in value if which of the following occurs?
a.
Price inflation in France
b.
An increase in U.S. real income
c.
A decrease in the Swiss money supply
d.
Falling interest rates in Switzerland
ANSWER:
d
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Page 10
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
24. A depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is:
a.
Constant
b.
Inelastic
c.
Elastic
d.
Unitary elastic
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
25. During the era of dollar appreciation, in the 1980s, a main reason why the dollar did not fall in value was:
a.
Flows of foreign investment into the United States
b.
Rising price inflation in the United States
c.
A substantial decrease in U.S. imports
d.
A substantial increase in U.S. exports
ANSWER:
a
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
Copyright Cengage Learning. Powered by Cognero.
Page 11
DATE MODIFIED:
6/22/2016 3:23 PM
26. Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged
price, within a few days to a couple of years?
a.
Letter of credit
b.
Foreign currency option
c.
Cable transfer
d.
Bill of exchange
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Foreign Currency Options
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
27. Given the foreign currency market for the Swiss franc, the supply of francs slopes upward, because as the dollar price
of the franc rises:
a.
America’s demand for Swiss merchandise rises
b.
America’s demand for Swiss merchandise falls
c.
Switzerland’s demand for American merchandise rises
d.
Switzerland’s demand for American merchandise falls
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
28. In a supply-and-demand diagram for Japanese yen, with the exchange rate in dollars per yen on the vertical axis, the
demand schedule for yen is drawn sloping:
a.
Upward
b.
Vertical
c.
Downward
d.
Horizontal
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Page 12
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
29. Suppose there occurs an increase in the Canadian demand for Japanese computers. This results in:
a.
An increase in the demand for yen
b.
A decrease in the demand for yen
c.
An increase in the supply of yen to Canada
d.
A decrease in the supply of yen to Canada
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
Table 11.1 gives the exchange rate quotations for the U.S. dollar and the British pound.
Table 11.1. Foreign Exchange Quotations
U.S. Dollar
Currency Per
Equivalent
U.S. Dollar
Tuesday
Monday
Tuesday
Monday
Britain (Pound)
1.4270
1.4390
.7008
.6949
30-day Forward
1.4211
1.4333
.7037
.6977
60-day Forward
1.4090
1.4220
.7097
.7032
180-day Forward
1.3930
1.4070
.7179
.7107
30. Consider Table 11.1. If one were to buy pounds for immediate delivery, on Tuesday the dollar cost of each pound
would be:
a.
$0.7008
b.
$0.7037
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Page 13
c.
$1.4211
d.
$1.4270
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Table 11.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Reading Foreign-Exchange Quotations
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
31. Consider Table 11.1. If one were to sell dollars for immediate delivery, on Tuesday the pound cost of each dollar
would be:
a.
.7008 pounds per dollar
b.
.7037 pounds per dollar
c.
1.4270 pounds per dollar
d.
1.4211 pounds per dollar
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Table 11.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Reading Foreign-Exchange Quotations
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
32. Consider Table 11.1. Comparing Tuesday to the previous Monday, by Tuesday the dollar had:
a.
Depreciated against the pound
b.
Appreciated against the pound
c.
Not changed against the pound
d.
None of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
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Page 14
PREFACE NAME:
Table 11.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Reading Foreign-Exchange Quotations
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
33. Consider Table 11.1. Concerning the Tuesday quotations: compared to the cost of buying 100 pounds on the spot
market, if 100 pounds were bought for future delivery in 180 days the dollar cost of the pounds would be:
a.
$3.40 higher
b.
$3.40 lower
c.
$6.80 higher
d.
$6.80 lower
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Table 11.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Reading Foreign-Exchange Quotations
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
34. Which method of trading currencies involves the conversion of one currency into another at one point in time with an
agreement to reconvert it back to the original currency at some point in the future?
a.
Forward transaction
b.
Futures transaction
c.
Spot transaction
d.
Swap transaction
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Types of Foreign-Exchange Transactions
KEYWORDS:
BLOOM’S: Remember
DATE CREATED:
6/22/2016 3:23 PM
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Page 15
DATE MODIFIED:
6/22/2016 3:23 PM
35. Most foreign exchange trading occurs between banks and:
a.
National governments
b.
Other banks
c.
Corporations
d.
Household investors
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Types of Foreign-Exchange Transactions
KEYWORDS:
BLOOM’S: Remember
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
36. The most important (in terms of dollar value) type of foreign exchange transaction by U.S. banks is the:
a.
Spot transaction
b.
Forward transaction
c.
Swap transaction
d.
Option transaction
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Types of Foreign-Exchange Transactions
KEYWORDS:
BLOOM’S: Remember
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
37. In the interbank market for foreign exchange, the ____ refers to the price that a bank is willing to pay for a unit of
foreign currency.
a.
Offer rate
b.
Bid rate
c.
Spread rate
d.
Transaction rate
ANSWER:
b
POINTS:
1
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Page 16
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Interbank Trading
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
38. In the interbank market for foreign exchange, the ____ refers to the price for which a bank is willing to sell a unit of
foreign currency.
a.
Offer rate
b.
Option rate
c.
Futures rate
d.
Bid rate
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Interbank Trading
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
39. In the interbank market for foreign exchange, the ____ refers to the difference between the offer rate and the bid rate.
a.
Cross rate
b.
Option
c.
Arbitrage
d.
Spread
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Interbank Trading
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
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Page 17
DATE MODIFIED:
6/22/2016 3:23 PM
40. A corporation dealing in foreign exchange may desire to obtain an exchange quote between the pound and franc,
whose values are both expressed relative to the dollar. ____ are used to determine such a relationship.
a.
Spot exchange rates
b.
Forward exchange rates
c.
Cross exchange rates
d.
Option exchange rates
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Reading Foreign-Exchange Quotations
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
41. Suppose the exchange value of the British pound is $2 per pound while the exchange value of the Swiss franc is 50
cents per pound. The cross exchange rate between the pound and the franc is:
a.
1 franc per pound
b.
2 francs per pound
c.
3 francs per pound
d.
4 francs per pound
ANSWER:
d
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Reading Foreign-Exchange Quotations
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
Exhibit 11.1
Assume the following: (1) the interest rate on 6-month treasury bills is 8 percent per annum in the United Kingdom and 4
percent per annum in the United States; (2) today’s spot price of the pound is $1.50 while the 6-month forward price of the
pound is $1.485.
42. Refer to Exhibit 11.1. By investing in U.K. treasury bills rather than U.S. treasury bills, and not covering exchange
rate risk, U.S. investors earn an extra return of:
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Page 18
a.
4 percent per year, 1 percent for the 6 months
b.
4 percent per year, 2 percent for the 6 months
c.
2 percent per year, 0.5 percent for the 6 months
d.
2 percent per year, 1 percent for the 6 months
ANSWER:
b
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Exhibit 11.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Interest Arbitrage, Currency Risk, and Hedging
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
43. Refer to Exhibit 11.1. If U.S. investors cover their exchange rate risk, the extra return for the 6 months on the U.K.
treasury bills is:
a.
1.0 percent
b.
1.5 percent
c.
2.0 percent
d.
2.5 percent
ANSWER:
a
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Exhibit 11.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Interest Arbitrage, Currency Risk, and Hedging
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
44. Refer to Exhibit 11.1. If the price of the 6-month forward pound were to ____, U.S. investors would no longer earn an
extra return by shifting funds to the United Kingdom.
a.
Rise to $1.52
b.
Rise to $1.53
c.
Fall to $1.48
d.
Fall to $1.47
ANSWER:
d
POINTS:
1
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Page 19
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Exhibit 11.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Interest Arbitrage, Currency Risk, and Hedging
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
45. Assume that you are the Chase Manhattan Bank of the United States, and you have 1 million Swiss francs in your
vault that you will need to use in 30 days. Moreover, you need 500,000 British pounds for the next 30 days. You arrange
to loan your francs to Barclays Bank of London for 30 days in exchange for 500,000 pounds today, and reverse the
transaction at the end of 30 days. You have just arranged a:
a.
Forward contract
b.
Futures contract
c.
Spot contract
d.
Currency swap
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: International trade and fi – DISC: International trade and finance
TOPICS:
Foreign Currency Options
KEYWORDS:
BLOOM’S: Understand
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
Figure 11.1 illustrates the supply and demand schedules for the Swiss franc. Assume that exchange rates are flexible.
Figure 11.1. Supply and Demand Schedules of Francs
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Page 20
46. Refer to Figure 11.1. At the equilibrium exchange rate of ____ per franc, ____ francs will be purchased at a total
dollar cost of ____.
a.
$.50, 5 million, $2.5 million
b.
$.50, 5 million, $1.5 million
c.
$.70, 3 million, $2.1 million
d.
$.70, 7 million, $4.9 million
ANSWER:
a
POINTS:
1
DIFFICULTY:
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Figure 11.1
NATIONAL STANDARDS:
United States – BUSPROG: Promotion – BUSPROG: Analytic
United States – BUSPROG: Reflective Thinking
STATE STANDARDS:
United States – PA – DISC: Reading and interpreting g – DISC: Reading and interpreting
graphs
TOPICS:
Exchange-Rate Determination
KEYWORDS:
BLOOM’S: Analyze
DATE CREATED:
6/22/2016 3:23 PM
DATE MODIFIED:
6/22/2016 3:23 PM
47. Refer to Figure 11.1. Suppose the exchange rate is $.70 per franc. At this exchange rate there is an ____ of francs
which leads to a ____ in the dollar price of the franc, a (an) ____ in the quantity of francs supplied, and a (an) ____ in the
quantity of francs demanded.
a.
Excess demand, rise, increase, decrease
b.
Excess demand, rise, decrease, increase
c.
Excess supply, fall, decrease, increase
d.
Excess supply, fall, increase, decrease
ANSWER:
c
POINTS:
1