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Chapter 3 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Assume that a bank's bid rate on Japanese yen is $.0041 and its ask rate is $.0043. Its bid-ask percentage spread is: A) about 4.99%. B) about 4.88%. C) about 4.65%. D) about 4.43%. 2. The bid/ask spread for small retail transactions is commonly in the range of ____ percent. A) 3 to 7 B) .01 to .03 C) 10 to 15 D) .5 to 1 3. ____ is not a factor that affects the bid/ask spread. A) Order costs B) Inventory costs C) Volume D) All of the above factors affect the bid/ask spread 4. According to the text, the forward rate is commonly used for: A) hedging. B) immediate transactions. C) previous transactions. D) bond transactions. 5. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in 90 days, it could: A) obtain a 90-day forward purchase contract on euros. B) obtain a 90-day forward sale contract on euros. C) purchase euros 90 days from now at the spot rate. D) sell euros 90 days from now at the spot rate. 6. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need C$200,000 in 90 days to make payment on imports from Canada, it could: A) obtain a 90-day forward purchase contract on Canadian dollars. B) obtain a 90-day forward sale contract on Canadian dollars. C) purchase Canadian dollars 90 days from now at the spot rate. D) sell Canadian dollars 90 days from now at the spot rate. 7. Which of the following is not true with respect to spot market liquidity? A) The more willing buyers and sellers there are, the more liquid a market is. B) The spot markets for heavily traded currencies such as the Japanese yen are very liquid. C) A currency's liquidity affects the ease with which an MNC can obtain or sell that currency. D) If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate. 8. Forward markets for currencies of developing countries are: A) prohibited. B) less liquid than markets for developed countries. C) more liquid than markets for developed countries. D) only available for use by government agencies. 9. A forward contract can be used to lock in the ____ of a specified currency for a future point in time. A) purchase price B) sale price C) A or B D) none of the above 10. The forward market: A) for euros is very illiquid. B) for Eastern European countries is very liquid. C) does not exist for some currencies. D) none of the above 11. ____ is not a bank characteristic important to customers in need of foreign exchange. A) Quote competitiveness B) Speed of execution C) Forecasting advice D) Advice about current market conditions E) All of the above are important bank characteristics to customers in need of foreign exchange. ... View Full Document

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