risk mgmt corpus Quiz 2 - Quiz 2 Chapters 3 4 and 5...

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Quiz 2 - Chapters 3, 4 and 5 Question 1 A global network of banks, brokers, and foreign exchange dealers connected by electronic communications is referred to as the foreign exchange market. True False The correct answer is 'True'. Question 2 A forward exchange contract locks in an exchange rate today for delivery or receipt of a specified amount of a foreign currency at a specified future date. True False The correct answer is 'True'. Question 3 If a company believed that a nation was preparing to devalue its currency, the company should reduce monetary assets and borrow extensively in that particular currency. True False The correct answer is 'True'. Question 4 If a company has a USD payable, and if it expects the SGD to depreciate at about the time of the scheduled payment date, then lagging the payment may be an appropriate strategy. True False The correct answer is 'False'. Question 5 If the forward rates are lower than the current short term spot rate, then we should not enter into the forward rate agreement to lend money because the rates we get are too low. True False The correct answer is 'False' Forward rates are expectations of future spot rate; they are unrelated to the current spot rate. Question 6 Futures contracts allow fewer delivery options than forward contracts. True False The correct answer is 'False'. Question 7 Reserve Bank of Australia (RBA) acts as the clearinghouse for all forward rate agreement contracts in Australia. True False The correct answer is 'False'. Forward rate agreement contracts are exchanged over-the-counter.
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Question 8 Credit risk is handled in forward markets by daily marking-to-market. True False The correct answer is 'True'. Question 9 Basis risk is the difference in the interest rates (or prices) of the same security between the cash market and the futures market. True False The correct answer is 'True'. Question 10 The maintenance margin is only required for sellers (not buyers) of futures contracts True False The correct answer is 'False'. Question 11 You observe the following quotes: Bank SGD/USD Location Merrill Lynch 6235/40 Singapore NAB 6228/33 Sydney What can you do to take advantage of the situation? Select one: a. Sell USD from NAB at 0.6228 and Buy USD to Merrill Lynch at 0.6235 b. Buy SGD from NAB at 0.6233 and sell SGD to Merrill Lynch at 0.6235 c. Buy USD from NAB at 0.6233 and sell USD to Merrill Lynch at 0.6240 d. Sell SGD from NAB at 0.6233 and Buy SGD to Merrill Lynch at 0.6235 The correct answer is: Buy SGD from NAB at 0.6233 and sell SGD to Merrill Lynch at 0.6235 Question 12 An Australian company has received USD in payment for goods exported. At the time of receiving the USD, the exchange rate is quoted as AUD/USD 0.7650. Rather than immediately converting the USD into AUD, the company decides to ‘speculate' on a favourable movement in the exchange rate. In ‘today + n days' the exchange rate is AUD/USD 0.7750. Which of the following statements is correct?
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