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Chapter 07 - Foreign Currency Transactions and Hedging Foreign Exchange Risk Chapter 07 Foreign Currency Transactions and Hedging Foreign Exchange Risk Multiple Choice Questions 1. According to the World Trade Organization, what was the size of international trade in 2008? A) $7,000,000,000 (7 billion dollars) B) $70,000,000,000 (70 billion dollars) C) $37,000,000,000 (37 billion dollars) D) $16,000,000,000,000 (16 trillion dollars) Answer: D Level: Easy LO: 1 2. In the years between 1990 and 2001 when global gross domestic product rose 27%, what was the growth in global exports? A) 25% B) 75% C) 35% D) 50% Answer: B Level: Medium LO: 1 3. What is a “foreign exchange rate?” A) the price to buy a foreign currency B) the price to buy foreign goods C) the difference between the price of goods in a foreign currency and the price in a domestic currency D) the cost to hold all monetary assets in a single currency Answer: A Level: Easy LO: 1 4. Why was there very little fluctuation in the foreign exchange rate in the period 1945- 1973? A) This was a period when the world economy was very stable. B) There was very little growth in the world economy between 1945 and 1973. C) Countries linked their currency to the U.S. dollar, which was backed by gold reserves. D) Most currencies were pegged to the British pound, which could be converted to sterling silver. Answer: C Level: Medium LO: 2 7-1
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Chapter 07 - Foreign Currency Transactions and Hedging Foreign Exchange Risk 5. The central bank of Country X buys and sells its own currency to ensure that the currency is always exchanged in a ratio of 2:1 with the currency of Country Y. What can we conclude about these two currencies? A) Country X is using the Euro. B) Country X has pegged its currency to the currency of Country Y. C) Country X has an undesirable currency. D) Country X allows its currency to float relative to the currency of Country Y. Answer: B Level: Medium LO: 2 6. When a currency is allowed to increase or decrease in value relative to other currencies, the currency is said to: A) be pegged to another currency. B) be less valuable. C) float. D) devalue. Answer: C Level: Easy LO: 2 7. For an upcoming trip, Pat wants to buy Euros at the local bank when the current exchange rate quoted on was $1.563 per €1. What should Pat plan to pay for €1,000? A) exactly $1,563 B) more than $1,563 C) about $640 D) less than $640 Answer: B Level: Medium LO: 2 8. Which of the following statements is true about the Euro? A) It is the currency used by all countries in the European Union. B) It is pegged to the U.S. dollar. C) It is the currency required to be used in financial reporting under international accounting standards.
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