Testbank Chapter 8: Currency of Payment (Managing Transaction Risks) TRUE/FALSE 1. If the exporter and the importer agree that a transaction will be in the currency of the exporter’s country, the exporter then bears all the risks of exchange rate fluctuation. DIF: Easy REF: 8-1a 2. The stated goal of the European Union is to eventually transform the euro to be a challenger to the U.S. dollar in its role as a preferred third-country currency. DIF: Easy REF: 8-1d 3. The type of exchange rate for a foreign currency for immediate delivery (roughly the price of a foreign currency to be delivered within 48 hours) is called the forward rate. DIF: Easy REF: 8-2a 4. Some currencies are traded in the futures’ market as “commodities.” DIF: Easy REF: 8-2a 5. As a theory of exchange rate determination, Purchasing Power Parity is the observation that exchange rates reflect the differences between nominal interest rates in different countries. DIF: Moderate REF: 8-3a 6. The International Fisher effect is the observation that exchange rates reflect the differences between nominal interest rates in different countries. DIF: Moderate REF: 8-3c 7. In the long run, technical forecasting of exchange rates is very accurate. DIF: Moderate REF: 8-4a 8. An options market hedge is, in effect, an insurance policy against unfavorable exchange rate fluctuations. DIF: Easy REF: 8-5d 9. A characteristic of options hedging is that options are commonly traded for many different currencies. DIF: Moderate REF: 8-5d 8-1
Chapter 8: Currency of Payment (Managing Transaction Risks) 10. If it is agreed that an international exchange will be in the currency of the exporter’s country, then there is no exchange rate fluctuation risk for the importer. DIF: Moderate REF: 8-1a 11. Although there are many variables affecting the exchange rate of currencies, applications of fundamental forecasting using multiple regression and ANOVA readily overcome the problem of having all these variables. DIF: Moderate REF: 8-4b 12. Although the Bank for International Settlements originally limited its membership to European Central Banks, the United States Central Bank joined in 1974. DIF: Hard REF: 8-6c 13. The Ex-Im Bank provides loans to small exporters. DIF: Moderate REF: 8-6e
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