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Version 1 1
Student name:__________
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) $6.19 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.
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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
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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.
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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 euro-denominated account at B will fall by €100,000.
D) Bank B's euro-denominated account at A will rise by €100,000.
14) The spot market
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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 2019.
B) accounted for about 26 percent of all foreign exchange trades in 2019.
C) accounted for about 32 percent of all foreign exchange trades in 2019.
D) accounted for about 61 percent of all foreign exchange trades in 2019.
16)
Country
U.S. $ equiv.
Currency per U.S. $
Tuesday
Monday
Tuesday
Monday
U.K.(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
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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 = $1.00.
D) none of the options
20) Indirect exchange rate quotations from the U.S. perspective are
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A) the price of one unit of the foreign currency in terms of the U.S. dollar.
B) the price of one U.S. dollar in the foreign currency.
C) the price of one foreign currency in terms of another foreign currency
D) none of the above
21) It is common practice among currency traders worldwide to both price and trade
currencies against the U.S. dollar. In fact, 2019 BIS statistics indicate that about __________ of
currency trading in the world involves the U.S. dollar on one side of the transaction.
A) 88 percent
B) 75 percent
C) 45 percent
D) 15 percent
22) It is common practice among currency traders worldwide to both price and trade
currencies against the U.S. dollar. Consider a currency dealer who makes a market in 5
currencies against the dollar. If he were to supply quotes for each currency in terms of all of the
others, how many quotes (including both indirect and direct quotes) would he have to provide?
A) 36
B) 30
C) 60
D) 120
E) none of the options
23) The bid price
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A) is the price that the dealer has just paid for something, his historical cost of the most
recent trade.
B) is the price that a dealer stands ready to pay.
C) refers only to auctions like eBay, not over-the-counter transactions with dealers.
D) is the price that a dealer stands ready to sell at.
24) Suppose the spot ask exchange rate, S a($|£), is $1.90 = £1.00 and the spot bid exchange
rate, S b($|£), 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 __________.
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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
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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
U.K. (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 on
Tuesday?
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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 and £1 = $2.00. Calculate
the euro-pound cross-rate.
A) £1 = €1.60
B) £1 = €0.625
C) £2.50 = €1
D) £1 = €2.50
35) The AUD/$ 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
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36) Suppose you observe the following exchange rates: €1 = $1.50 and £1 = $2.00. Calculate
the euro-pound cross-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 and £1 = $2.00. Calculate
the euro-pound cross-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 and ¥120 = $1.00.
Calculate the euro-yen cross-rate.
A) ¥133.33 = €1.00
B) €1 = ¥180
C) ¥80 = €1.00
D) €1 = £2.50
39) Suppose you observe the following exchange rates: €1 = $1.45 and £1 = $1.90. Calculate
the euro-pound cross-rate.
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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 euros 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 euros to sell Swiss francs.
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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 euros to buy Canadian dollars.
A) €0.6094/CAD
B) €0.6104/CAD
C) €0.6181/CAD
D) €0.6191/CAD
44)
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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 euros 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(€/$)
B)
C)
D) all of the options
47) Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.
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A) In dealer jargon, this is a currency against currency trade.
B) The bank will frequently handle such a trade by buying British pounds for U.S.
dollars and then selling Swiss francs with U.S. dollars.
C) The bank would typically sell the British pounds directly for Swiss francs.
D) Both A and B
48) Including the transaction costs of the bid-ask spread, the euro-pound cross exchange rate
for a customer who wants to sell euro and buy pounds can be computed as
A) Sb(£/€) = Sb($/€) × Sb(£/$)
B) Sa(€/£) = Sa(€/$) × Sa($/£)
C)
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
Version 1 17
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
Version 1 18
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) Which of the following statements regarding triangular arbitrage true?
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A) The purpose is to earn an arbitrage profit via trading among three currencies, where
the direct cross-exchange rate between the second and the third currency is not in alignment with
the implied cross-exchange rate.
B) It can involve trading out of the US dollar into a second currency, then trading it for
a third currency, which is in turn traded for US dollars.
C) Both A and B
D) Neither A or B
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?
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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 (CAD/$) spot rate is CAD1.33/$ and S$/CAD1.15.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) The FX market is not only the largest financial market in the world, but also:
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A) a centralized market with a wide variety of market participants and increased
transparency.
B) a centralized market with a narrow variety of market participants and limited
transparency.
C) a decentralized market with a wide variety of market participants and limited
transparency.
D) none of the options
61) 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
62) 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) one second.
B) one minute.
C) one hour.
D) one day.
63) The forward price
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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
64) 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.
65) For a U.S. trader working with 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
66) The forward market
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A) involves contracting today for the future purchase or 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 or sale of foreign exchange at a
price agreed upon today.
C) involves contracting today for the right but not the obligation for the future purchase
or sale of foreign exchange at a price agreed upon today.
D) none of the options
67) The $/CAD spot bid-ask rates are $0.7560–$0.7625. The 3-month forward points are 12–
16. Determine the $/CAD 3-month forward bid-ask rates.
A) $0.7548–$0.7609
B) $0.7572–$0.7641
C) $0.7512–$0.7616
D) Cannot be determined with the information given.
68) Restate the following one-, three-, and six-month outright forward American term bid-ask
quotes in forward points:
S($/SFr)
=
0.8500
−
0.8505
F1($/SFr)
=
0.8505
−
0.8510
F3($/SFr)
=
0.8510
−
0.8520
F6($/SFr)
=
0.8515
−
0.8530
A)
Forward Point Quotations
One-Month
05-05
Three-Month
10-15
Six-Month
15-25
B)
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Forward Point Quotations
One-Month
05-05
Three-Month
05-10
Six-Month
05-10
C)
Forward Point Quotations
One-Month
00-05
Three-Month
05-10
Six-Month
05-10
D) none of the options
69) If one has agreed to buy a foreign exchange forward,
A) you have a short position in the forward contract.
B) you have a long position in the forward contract.
C) until the exchange rate moves, you haven't made money, so you're neither short nor
long.
D) you have a long position in the spot market.
70) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.
You enter into a short position on €1,000. At maturity, the spot exchange rate is $1.60/€. How
much have you made or lost?
A) Loss of $100
B) Gain of €100
C) Loss of $50
D) Gain of $150
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71) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.
Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be
$1.52/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do
you need to take to speculate in the forward market?
A) Take a long position in a forward contract on €1,000,000 at $1.50/€.
B) Take a short position in a forward contract on €1,000,000 at $1.50/€.
C) Buy euro today at the spot rate, sell them forward.
D) Sell euro today at the spot rate, buy them forward.
72) The current spot exchange rate is $1.45/€ and the three-month forward rate is $1.55/€.
Based upon your economic forecast, you are pretty confident that the spot exchange rate will be
$1.50/€ in three months. Assume that you would like to buy or sell €100,000. What actions
would you take to speculate in the forward market? How much will you make if your prediction
is correct?
A) Take a short position in a forward. If you're right you will make $15,000.
B) Take a long position in a forward contract on euro. If you're right you will make
$5,000.
C) Take a short position in a forward contract on euro. If you're right you will make
$5,000.
D) Take a long position in a forward contract on euro. If you're right you will make
$15,000.
73) Consider a trader who takes a long position in a six-month forward contract on the euro.
The forward rate is $1.75 = €1.00; the contract size is €62,500. At the maturity of the contract
the spot exchange rate is $1.65 = €1.00.
A) The trader has lost $625.
B) The trader has lost $6,250.
C) The trader has made $6,250.
D) The trader has lost $66,287.88.
Version 1 26
74) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.
Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be
$1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do
you need to take to speculate in the forward market? What is the expected dollar profit from
speculation?
A) Sell €1,000,000 forward for $1.50/€.
B) Buy €1,000,000 forward for $1.50/€.
C) Wait three months, if your forecast is correct buy €1,000,000 at $1.52/€.
D) Buy €1,000,000 today at $1.55/€; wait three months, if your forecast is correct sell
€1,000,000 at $1.62/€.
75) Which of the following are correct?
A)
B)
C)
D) all of the options
76) Which of the following are correct?
A)
B)
C)
D) all of the options
Version 1 27
77) Which of the following are correct?
A)
B)
C)
D) all of the options
78) Which of the following are correct?
A)
B)
C)
D) all of the options
79) When a foreign currency trades at a premium in the forward market (Assume that
exchange rates are quoted in American terms)
A) the exchange rate is more than one dollar.
B) the exchange rate is less than one dollar.
C) the forward rate is less than the spot rate.
D) the forward rate is more than the spot rate.
80) When a foreign currency trades at a discount in the forward market (Assume that
exchange rates are quoted in American terms)
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A) the forward rate is less than the spot rate.
B) the forward rate is more than the spot rate.
C) the forward exchange rate is less than one dollar
D) the exchange rate is less than it was yesterday.
81) The SF/$ spot exchange rate is SF1.25/$ and the 180-day forward exchange rate is
SF1.30/$. The forward premium (discount) on annualized basis is
A) the dollar trading at an 8% premium to the Swiss franc.
B) the dollar trading at a 4% premium to the Swiss franc.
C) the dollar trading at an 8% discount to the Swiss franc.
D) the dollar trading at a 4% discount to the Swiss franc.
82) The $/€ spot exchange rate is $1.50/€ and the 120-day forward exchange rate is $1.45/€.
The forward premium (discount) is
A) the dollar trading at an 8% premium to the euro.
B) the dollar trading at a 5% premium to the Swiss franc.
C) the dollar trading at a 10% discount to the euro.
D) the dollar trading at a 5% discount to the euro.
83) The $/€ spot exchange rate is $1.50/€ and the 90-day forward premium for the euro is 10
percent. Find the 90-day forward price for the euro.
A) $1.65/€
B) $1.50375/€
C) $1.9125/€
D) none of the options
Version 1 29
84) The SF/$ spot exchange rate is SF1.25/$ and the 180-day forward premium is 8 percent.
What is the outright 180-day forward exchange rate?
A) SF1.30/$
B) SF1.35/$
C) SF6.25/$
D) none of the options
85) The SF/$ 180-day forward exchange rate is SF1.30/$ and the 180-day forward premium
is 8 percent. What is the spot exchange rate?
A) SF1.30/$
B) SF1.35/$
C) SF1.25/$
D) none of the options
86) Consider the following spot and forward rate quotations for the Swiss franc.
S($/SFr) = 0.85
F1($/SFr) = 0.86
F2($/SFr) = 0.87
F3($/SFr) =0.88
Which of the following is true?
A) The Swiss franc is definitely going to be worth more dollars in six months.
B) The Swiss franc is probably going to be worth less in dollars in six months.
C) The Swiss franc is trading at a forward discount.
D) The Swiss franc is trading at a forward premium.
Version 1 30
87) Consider the following spot and forward rate quotations for the Swiss franc.
S($/SFr) = 0.85
F1($/SFr) = 0.86
F2($/SFr) = 0.87
F3($/SFr) =0.88
Calculate the 3-month forward premium in American terms. Assume 30-day months and 360-
day years.
A) 0.353.
B) 0.4235.
C) 0.1364.
D) 0.1412.
88) Bank dealers in conversations among themselves use a shorthand notation to quote bid
and ask forward prices in terms of forward points. This is convenient because
A) forward points may change faster than spot and forward quotes.
B) forward points may remain constant for long periods of time, even if the spot rates
change frequently.
C) in swap transactions where the trader is attempting to minimize currency exposure,
the actual spot and outright forward rates are often of no consequence.
D) Both B and C
89) Bank dealers in conversations among themselves use a shorthand notation to quote bid
and ask forward prices in terms of forward points. Complete the following table:
Spot
Forward Point Quotations
1.9072-1.9077
One-month
32-30
Three-month
57-54
1.9015-1.9023
Six-month
145-138
1.8927-1.8939
Version 1 31
A) 1.9040–1.9047
B) 1.9042–1.9049
C) 1.9032–1.9030
D) none of the options
90) An exchange-traded fund (ETF) is
A) an uncovered speculative position in a currency.
B) a portfolio of financial assets in which shares of the fund are sold and redeemed
solely by the fund sponsor.
C) a portfolio of financial assets in which shares representing fractional ownership of
the fund trade on an organized exchange.
D) none of the options
91) Which of the following statements regarding ETF are not true?
A) Assets invested in the global ETF industry reached a new record of $5.4 trillion at
the end of March 2019
B) Currency ETFs are a segment within the broader ETF industry
C) ETFs allow small investors the opportunity to invest in portfolios of financial assets
that they would find difficult to construct individually.
D) none of the above are not true
92) The largest and most active financial market in the world is
A) the London Stock Exchange.
B) the New York Stock Exchange
C) the FX market.
D) none of the options
Version 1 32
93) Consider the balance sheets of Bank A and Bank B. Bank A is in Milan, Bank B is in
New York. The current exchange rate is €1.00 = $1.25. Show the correct balances in each
account if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank
B for $125,000 using its correspondent relationship with Bank B.
Bank A (Milan) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
€ deposit at B
€
500
B's Eurodollar deposit
$
900
$ deposit at B
$
800
B's € deposit
€
220
Cash in the Vault
€
200
€
200
Other Liabilities
€
300
€
300
Other Assets
€
400
€
400
Owners Equity
€
500
€
500
Total Assets @
€1.00 = $1.25
€
1,740
Total Liabilities &
Equity @ €1.00 = $1.25
€
1,740
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar
Deposit at A
€
900
A's euro deposit
$
500
€ deposit at A
$
220
A's $ deposit
€
800
Cash in the Vault
€
200
€
200
Other Liabilities
€
200
€
200
Other Assets
€
600
€
600
Owners Equity
€
350
€
350
Total Assets @
€1.00 = $1.25
€
1,975
Total Liabilities &
Equity @ €1.00 = $1.25
€
1,975
Version 1 33
94) Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in
New York. The current exchange rate is £1.00 = $2.00. Show the correct balances in each
account 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.
Bank A (London) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
£ deposit at B
£
500
B's Eurodollar deposit
$
850
$ deposit at B
$
1,000
B's £ deposit
£
100
Cash in the Vault
£
200
Other Liabilities
£
300
Other Assets
£
400
Owners Equity
£
775
Total Assets
£
1,600
Total Liabilities &
Equity
£
1,600
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar Deposit
at A
$
850
A's £ deposit
£
500
£ deposit at A
£
100
A's $ deposit
$
1,000
Cash in the Vault
$
200
Other Liabilities
$
200
Other Assets
$
1,000
Owners Equity
$
50
Total Assets
$
2,250
Total Liabilities &
Equity
$
2,250
Version 1 34
95) Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in
New York. The current exchange rate is & pound;1.00 = $2.00. Show the correct balances in
each account if a currency trader employed at Bank A buys £50,000 from a currency trader at
Bank B for $100,000 using its correspondent relationship with Bank B.
Bank A (London) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
£ deposit at B
£
500
B's Eurodollar deposit
$
850
$ deposit at B
$
1,000
B's £ deposit
£
100
Cash in the Vault
£
200
Other Liabilities
£
300
Other Assets
£
400
Owners Equity
£
775
Total Assets
£
1,600
Total Liabilities &
Equity
£
1,600
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar Deposit
at A
$
850
A's £ deposit
£
500
£ deposit at A
£
100
A's $ deposit
$
1,000
Cash in the Vault
$
200
Other Liabilities
$
200
Other Assets
$
1,000
Owners Equity
$
50
Total Assets
$
2,250
Total Liabilities &
Equity
$
2,250
Version 1 35
96)
Country
USD equiv.
Currency per USD
Tuesday
Monday
Tuesday
Monday
U.K. (Pound)
1.7368
1.7424
0.5758
0.5739
1 Month
Forward
1.7369
1.7425
0.5757
0.5739
3 Months
Forward
1.738
1.7434
0.5754
0.5736
6 Months
Forward
1.7409
1.7461
0.5744
0.5727
Canada
(Dollar)
0.8667
0.8653
1.1538
1.1557
1 Month
Forward
0.8674
0.866
1.1529
1.1547
3 Months
Forward
0.8688
0.8674
1.151
1.1529
6 Months
Forward
0.8708
0.8693
1.1484
1.1504
Japan (Yen)
0.008518
0.008495
117.3985
117.7163
1 Month
Forward
0.008548
0.008525
116.0631
117.3021
3 Months
Forward
0.008616
0.008593
116.0631
116.3738
6 Months
Forward
0.008724
0.0087
114.6263
114.9425
Switzerland
(Franc)
0.7648
0.7652
1.3075
1.3068
1 Month
Forward
0.767
0.7674
1.3038
1.3031
3 Months
Forward
0.7718
0.7722
1.2957
1.295
6 Months
Forward
0.7791
0.7794
1.2835
1.283
Version 1 36
Euro
1.2000
1.1906
0.8333
0.8399
Using the table, what is the Canadian dollar–euro spot cross-exchange rate from Tuesday?
97)
Country
USD equiv.
Currency per USD
Tuesday
Monday
Tuesday
Monday
U.K. (Pound)
1.7368
1.7424
0.5758
0.5739
1 Month
Forward
1.7369
1.7425
0.5757
0.5739
3 Months
Forward
1.738
1.7434
0.5754
0.5736
6 Months
Forward
1.7409
1.7461
0.5744
0.5727
Canada
(Dollar)
0.8667
0.8653
1.1538
1.1557
1 Month
Forward
0.8674
0.866
1.1529
1.1547
3 Months
Forward
0.8688
0.8674
1.151
1.1529
6 Months
Forward
0.8708
0.8693
1.1484
1.1504
Japan (Yen)
0.008518
0.008495
117.3985
117.7163
1 Month
Forward
0.008548
0.008525
116.0631
117.3021
3 Months
Forward
0.008616
0.008593
116.0631
116.3738
6 Months
Forward
0.008724
0.0087
114.6263
114.9425
Switzerland
(Franc)
0.7648
0.7652
1.3075
1.3068
1 Month
Forward
0.767
0.7674
1.3038
1.3031
3 Months
Forward
0.7718
0.7722
1.2957
1.295
Version 1 37
6 Months
Forward
0.7791
0.7794
1.2835
1.283
Euro
1.2000
1.1906
0.8333
0.8399
Using the table what is the 6-month forward pound–yen cross-exchange rate from Tuesday?
98)
Country
USD equiv.
Currency per USD
Tuesday
Monday
Tuesday
Monday
U.K. (Pound)
1.7368
1.7424
0.5758
0.5739
1 Month
Forward
1.7369
1.7425
0.5757
0.5739
3 Months
Forward
1.738
1.7434
0.5754
0.5736
6 Months
Forward
1.7409
1.7461
0.5744
0.5727
Canada
(Dollar)
0.8667
0.8653
1.1538
1.1557
1 Month
Forward
0.8674
0.866
1.1529
1.1547
3 Months
Forward
0.8688
0.8674
1.151
1.1529
6 Months
Forward
0.8708
0.8693
1.1484
1.1504
Japan (Yen)
0.008518
0.008495
117.3985
117.7163
1 Month
Forward
0.008548
0.008525
116.0631
117.3021
3 Months
Forward
0.008616
0.008593
116.0631
116.3738
6 Months
Forward
0.008724
0.0087
114.6263
114.9425
Switzerland
(Franc)
0.7648
0.7652
1.3075
1.3068
1 Month
Forward
0.767
0.7674
1.3038
1.3031
Version 1 38
3 Months
Forward
0.7718
0.7722
1.2957
1.295
6 Months
Forward
0.7791
0.7794
1.2835
1.283
Euro
1.2000
1.1906
0.8333
0.8399
Using the table, what is 3-month forward premium or discount (expressed as an annual
percentage rate) for the British pound in American terms?
Version 1 39
Answer Key
Test name: chapter 5
Version 1 40
Version 1 41
Version 1 42
