ECO-322 Chapter 11 - Chapter 11 The Foreign Exchange Market...

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Chapter 11 – The Foreign Exchange Market and Exchange Rates Multiple Choice 1. Individuals, firms, and banks buy and sell foreign currencies in the: A) foreign exchange market B) currency market C) Eurocurrency market D) Export-Import Bank Answer: A pg. 281 2. The foreign exchange market is: A) where American consumers purchase goods imported from other countries B) where domestic commercial bank deposits are denominated in a currency other than the home nation’s C) the framework for the exchange of one national currency for another D) where bank deposits are denominated in a currency other than that of the nation in which the deposit is held Answer: C pg. 281 3. What is the principal function of the foreign exchange market? A) To transfer purchasing power from one nation to another in exchange for currency B) To maintain fixed exchange rates that remain unaffected by market forces C) To facilitate foreign direct investment D) None of the above Answer: A pg. 281 4. Which of the following activities generates an increase in a nation’s demand for foreign currency? A) American tourists visit Japan B) a US firm imports goods from Europe C) An individual in the US buys bonds from France D) all of the above Answer: D pg. 281
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5. Which of the following generates an increase in a nation’s supply of foreign currencies? A) American tourists visit Japan B) An American firm exports goods to Canada C) An individual in the US buys bonds from France D) a US firm imports goods from Europe Answer: B pg. 281 6. A nation’s commercial bank operates as a(n) ____________ for the foreign exchange demanded and supplied as the nation’s residents engage in foreign transactions. A) barter trader B) exporter C) clearinghouse D) all of the above Answer: D pg. 282 7. How many levels of agents or participants can be identified in the foreign exchange market? A) One B) Five C) Four D) Seven Answer: C pg. 282 8. The Bank of International Settlements (BIS) in Switzerland estimated that foreign exchange market transaction total __________ per day. A) $1.3 billion B) $1.3 trillion C) $350 million D) $5 trillion Answer: B pg. 283 9. Which city is home to the largest foreign exchange market in the world? A) New York B) London C) Frankfurt D) Tokyo Answer: B pg. 283
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10. A television costs 600 Canadian dollars (CAD) in Canada and 500 US dollars (USD) in the US. The exchange rate between the Canadian dollar and the US dollar is: A) 1.2 CAD per 1 USD B) 1.2 USD per 1 CAD C) .833 CAD per 1 USD D) Cannot determine Answer: A pg. 287 11. An exchange rate is defined as: A) the interest rate at which currencies can borrowed B) the domestic currency price of the foreign currency C) the ratio of export prices to import prices D) The domestic currency price of a market basket of the most traded currencies in the world Answer: B pg. 283 12. ________ was the common currency adopted a majority of the member nations in the EU. A)
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This note was uploaded on 07/07/2011 for the course ECON 322 taught by Professor Steven during the Spring '11 term at Southern New Hampshire University.

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ECO-322 Chapter 11 - Chapter 11 The Foreign Exchange Market...

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