chapter 6
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chapter 6

Course Number: SPKAL 22, Spring 2013

College/University: UMSL

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Fundamentals of Multinational Finance, 4e (Moffett) Chapter 6 The Foreign Exchange Market Multiple Choice and True/False Questions 6.1 Geographical Extent of the Foreign Exchange Market 1) Which of the following is NOT true regarding the market for foreign exchange? A) The market provides the physical and institutional structure through which the money of one country is exchanged for another. B) The rate of...

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of Fundamentals Multinational Finance, 4e (Moffett) Chapter 6 The Foreign Exchange Market Multiple Choice and True/False Questions 6.1 Geographical Extent of the Foreign Exchange Market 1) Which of the following is NOT true regarding the market for foreign exchange? A) The market provides the physical and institutional structure through which the money of one country is exchanged for another. B) The rate of exchange is determined in the market. C) Foreign exchange transactions are physically completed in the foreign exchange market. D) All of the above are true. Register to View Answer2) While trading in foreign exchange takes place worldwide, the major currency trading centers are located in A) London, New York, and Tokyo. B) New York, Zurich, and Bahrain. C) Paris, Frankfurt, and London. D) Los Angeles, New York, and London. Register to View Answer3) Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market? A) The transfer of purchasing power between countries. B) Obtaining or providing credit for international trade transactions. C) Minimizing the risks of exchange rate changes. D) All of the above were identified as functions of the foreign exchange market. Register to View Answer6.2 Market Participants 1) The authors identify two tiers of foreign exchange markets: A) bank and nonbank foreign exchange. B) commercial and investment transactions. C) interbank and client markets. D) client and retail market. Register to View Answer 1 Copyright 2012 Pearson Education, Inc. 2) It is characteristic of foreign exchange dealers to A) bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale. B) act as market makers, willing to buy and sell the currencies in which they specialize. C) trade only with clients in the retail market and never operate in the wholesale market for foreign exchange. D) All of the above are characteristics of foreign exchange dealers. Register to View Answer3) Which of the following may be participants in the foreign exchange markets? A) bank and nonbank foreign exchange dealers B) central banks and treasuries C) speculators and arbitragers D) All of the above. Register to View Answer4) ________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction. A) Speculators and arbitragers B) Foreign exchange brokers C) Central banks D) Treasuries Register to View Answer5) In the foreign exchange market, ________ seek all of their profit from exchange rate changes while ________ seek to profit from simultaneous exchange rate differences in different markets. A) wholesalers; retailers B) central banks; treasuries C) speculators; arbitragers D) dealers; brokers Register to View Answer6) Foreign exchange ________ earn a profit by a bid-ask spread on currencies they purchase and sell. Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase. A) central banks; treasuries B) dealers; brokers C) brokers; dealers D) speculators; arbitragers Register to View Answer 6.3 Transactions in the Interbank Market 2 Copyright Pearson 2012 Education, Inc. 1) A foreign exchange ________ is the price of one currency expressed in terms of another currency. A foreign exchange ________ is a willingness to buy or sell at the announced rate. A) quote; rate B) quote; quote C) rate; quote D) rate; rate Register to View Answer2) A ________ transaction in the foreign exchange market requires an almost immediate delivery of foreign exchange. A) spot B) forward C) futures D) none of the above Register to View Answer3) A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date. A) spot B) forward C) swap D) currency Register to View Answer6.4 Size of the Foreign Exchange Market 1) Although the "big three" (dollar, euro, and yen) continue to dominate global trades, it will probably not be long before a fourth, not yet on the mapthe Chinese renminbiwill move into greater prominence. Register to View Answer6.5 Foreign Exchange Rates and Quotations 1) The three currencies that dominate foreign exchange trading are ________. A) U.K pound, Chinese yuan, and Japanese yen B) U.S. dollar, Chinese yuan, and U.K. pound C) U.S. dollar, Japanese yen, and the euro D) U.S. dollar, U.K. pound, and Japanese yen Register to View Answer2) A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market. A) "forward against spot" B) "forspot" 3 Copyright 2012 Pearson Education, Inc. C) "repurchase agreement" D) "spot against forward" Register to View Answer3) From the viewpoint of a British investor, which of the following would be a direct quote in the foreign exchange market? A) SF2.40/ B) $1.50/ C) 0.55/euro D) $0.90/euro Register to View AnswerDiff: 1 4) A/an ________ quote in the United States would be foreign units per dollar, while a/an ________ quote would be in dollars per foreign currency unit. A) direct; direct B) direct; indirect C) indirect; indirect D) indirect; direct Register to View Answer5) ________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency. A) Dealers; ask; bid B) Dealers; bid; ask C) Brokers; ask; bid D) Brokers; bid; ask Register to View AnswerDiff: 1 6) For arbitrage opportunities to be practical, A) participants must have instant access to quotes. B) participants must have instant access to executions. C) bank traders must be able to execute the arbitrage trades without an initial sum of money relying on their bank's credit standing. D) all of the above must be true. Register to View Answer7) The U.S. dollar suddenly changes in value against the euro moving from an exchange rate of $0.8909/euro to $0.08709/euro. Thus, the dollar has ________ by ________. A) appreciated; 2.30% B) depreciated; 2.30% C) appreciated; 2.24% D) depreciated; 2.24% Register to View Answer4 Copyright 2012 Pearson Education, Inc. 8) When the cross rate for currencies offered by two banks differs from the exchange rate offered by a third bank, a triangular arbitrage opportunity exists. Register to View Answer 5 Copyright 2012 Pearson Education, Inc.

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