77) The ________ is the currency that dominates the foreign exchange market.
A) Japanese yen
B) British pound
C) U.S. dollar
D) Australian dollar
78) The world’s largest banks exchange currencies at spot and forward rates in the ________.
A) International Finance Corporation
B) Eurocurrency market
C) interbank market
D) World Bank
79) Banks in the interbank market ________.
A) provide long-term loans to small-sized and medium-sized companies
B) provide long-term loans to large companies
C) offer advice on trading strategies
D) exchange currencies exclusively at spot rates
80) In the interbank market, the process of aggregating the currencies that one bank owes another
and then carrying out that transaction is called ________.
A) swapping
B) dumping
C) hedging
D) clearing
81) ________ in the foreign exchange market specialize in currency futures and options
transactions.
A) Securities exchanges
B) Eurocurrency markets
C) Interbank markets
D) Over-the-counter markets
82) ________ is a decentralized exchange encompassing a global computer network of foreign
exchange traders and other market participants.
A) Securities exchanges
B) Eurocurrency market
C) Interbank market
D) Over-the-counter market
83) ________ is traded freely in the foreign exchange market, with its price determined by the
forces of demand and supply.
A) Representative money
B) Private currency
C) Hard currency
D) Fiat money
84) Governments impose currency restrictions in their countries to ________.
A) encourage future investment outflows
B) indirectly reduce imports and exports
C) protect currencies from speculators
D) exhaust their reserve of hard currencies
85) Which of the following is used by governments for the convertibility of currencies in their
countries?
A) multiple exchange rates
B) countertrade
C) import deposit requirements
D) OTC market
86) To insure against potential losses that result from adverse changes in exchange rates, Trader’s
Paradise should use currency ________.
A) swap
B) speculation
C) hedging
D) arbitrage
87) If Trader’s Paradise purchases and sells the euros simultaneously in different markets for
profit, it would be engaging in currency ________.
A) swap
B) speculation
C) hedging
D) arbitrage
88) If Trader’s Paradise purchases euros expecting the value to rise and generate a profit for the
company, it is engaging in currency ________.
A) swap
B) speculation
C) hedging
D) arbitrage
89) When doing business with former communist countries, Trader’s Paradise insists on getting
paid in a currency that can be traded freely in the foreign exchange market. The price of this
currency is determined by the forces of supply and demand. Which of the following is the mode
of payment illustrated in this scenario?
A) community currency
B) private currency
C) local currency
D) convertible currency
90) If Sally sees a quote of ¥117.87/$, she should know that ________.
A) the yen is the base currency here
B) this is a direct quote on the dollar
C) this is a direct quote on the yen
D) the quote is in U.S. dollars
91) Which of the following is true about a quote of ¥117.87/$?
A) It is equal to $.008484/¥.
B) The quote is in U.S. dollars.
C) This is an indirect quote on the yen.
D) It costs a little more than a dollar to buy one yen.
92) ABC Software has had difficulty obtaining funds to expand. A friend of the CEO
recommends that the company should explore an offshore financial center, which ________.
A) is a country or territory whose financial sector features very few regulations and few, if any,
taxes
B) tends to be characterized by political and economic instability making, it an inexpensive but
risky source of funds
C) typically lends money to companies that have had difficulty getting financing elsewhere
because of poor credit records
D) is a financial center located in a resort community and is characterized by poor
telecommunications infrastructure
93) If ABC Software simultaneously purchases and sells foreign exchange for two different
dates, the company is said to be involved in ________.
A) increasing its foreign exchange rate risk
B) conducting a currency swap
C) entering an arbitrage situation
D) buying and selling at the spot rate
94) If ABC Software holds a currency option to purchase Swiss francs at SF 1.67/$ in 30 days, at
the end of which the exchange rate is SF1.70/$, then ABC Software ________.
A) is required to follow through on a currency exchange
B) has succeeded in hedging against exchange rate risk
C) would exercise its currency option
D) would not exercise its currency option
95) The company’s financial advisors recommend that ABC Software conduct most of its
business in a vehicle currency. Which of the following is true of vehicle currencies?
A) A vehicle currency is a contract that requires the exchange of an agreed-upon amount of a
currency on an agreed-upon date at a specific exchange rate.
B) The U.S. dollar, Australian dollar, Japanese yen, and British pound are all examples of
vehicle currencies.
C) The U.S. dollar became a vehicle currency after World War II when all of the world’s major
currencies were tied indirectly to the dollar because it was the most stable currency.
D) The Chinese yuan is expected to become a vehicle currency in the near future as China’s
position in world trade continues to grow.
96) Describe the purposes of the international capital market. What factors account for its rapid
growth?
97) What is an offshore financial center? Differentiate between an operational center and a
booking center, providing examples for each.
98) How does the international capital market reduce the cost of money for borrowers? What are
the two components for every quoted exchange rate?
99) Explain the role of equity in a national capital market. What factors are responsible for the
growth of the international equity market?
100) What is the role of debt in national capital markets, and what form does company debt
normally take? Describe the different types of international bonds.
101) Briefly describe any two of the three main components of the international capital market.
102) Differentiate between currency speculation and currency arbitrage.
103) What is the foreign exchange market? Explain why investors use this market.
104) Identify and explain the types of currency instruments used in the forward market.
105) Explain the concept of cross rates. Include the description of a vehicle currency and the role
it plays in the foreign exchange market.
106) Briefly describe the three main institutions of the foreign exchange market.
107) Explain the function of spot rates and the spot market.
108) What is currency speculation? Why do some governments protect their markets from
currency speculation?
109) Why do governments impose currency restrictions and how can companies get around such
restrictions?