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    12 views13 pages

    Chapter 4

    Uploaded by

    csv92
    chapter 4

    Copyright:

    © All Rights Reserved
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    of 13
    SMEG TOAE Intemational Financial Management Chapter 4 The Foreign Exchange Market ™ Multiple Choice and True/False Questions 1 AIAn is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency. (2) Eurodollar transaction (b) imporvExport exchange (©) forcign exchange transaction (4) interbank market transaction Topic: Introduetion to the Foreign Exchange Market Skill: Recognition Answer: C 2. The foreign exchange market is NOT efficient because (a) markets participants do not compete with one another duc to the fact that exchange takes place around the world and not in a single centralized location. (b) dealers have ask prices that are higher than bid prices. (©) central governments dominate the foreign exchange market and everybody knows that by definition, central governments are inefficient (@) None of the reasons listed above cause the forcign exchange market to be inefficient. ‘Topic: Foreign Exchange Market Efficiency Skill: Conceptual ‘Answer: D 3. Which of the following may be participants in the foreign exchange markets? (a) Bank and non-bank forcign exchange dealers, (b) Central banks and treasuries. (©) Speculators and arbitragers. (@) Allof the above. Topic: Foreign Exchange (FX) Market Participants Skill: Recognition Answer: D 4. The primary motive of foreign exchange activities by most central banks is profit. (@ Tre (b) False Topie: Foreign Exchange (FX) Market Participants Skill: Recognition Answer: B S AER TOA E Intemational Financial Management 5. Which of the following is NOT one of the threo categories reported for foreign exchange? @ (b) Swap transactions (©) Strip transactions (@) Futures transactions Topic: FX Trading Volume Skill: Recognition Answer: C ot transactions 6. Forcign exchange swaps were larger in 1998 than in 2001. The Bank for International Settlements attributes this to (2) the introduction of the Euro. (b) growing electronic brokering in the spot interbank market. (©) consolidation in general (@) All ofthe above Topic: FX Trading Volume Skill: Recognition Answer: D Loa ‘wansaction in the foreign exchange market requires delivery of foreign exchange at some future date, (a) spot (b) forward (©) swap (a) currency Topic: Foreign Exchange Market Transactions Skill: Recognition Answer: B 8. A forward contract to deliver British pounds for U.S, dollars could be deseribed either as (@) buying dollars forward; buying pounds forward (b) selling pounds forward; selling dollars forward (©) selling pounds forward; buying dollars forward (@) selling dollars forward; buying pounds forward Topic: Foreign Exchange Market Forward Transactions Skill: Recognition Answer: C 9. 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” (©) repurchase agreement (a) “spot against forward” Topie: Foreign Exchange Market Swaps Skill: Recognition UE Anse thre Intemational Financial Management Answer D The isa derivative forward contract that was created in the 1990s. It has the same characteristics and documentation requirements as traditional forward contracts except that they are only settled in U.S. dollars and the foreign currency involved in the transaction is not delivered. (a) nondeliverable forward (b) dollar only forward (©) virtual forward (@) intemet forward Topic: Forcign Exchange Market Derivatives Skill: Recognition Answer: A Which of the following is NOT true regarding nondeliverable forward (NDE) contracts? (a) NDFs are used primarily for emerging market currencies. (b) Pricing of NDFs reflects basic interest rate differentials plus an additional premium charged for dollar settlement. (©) NDFs can only be traded by central banks. (@) Allof the above are true Topie: Foreign Exchange Market NDFs Skill: Conceptual Answer: C Most foreign exchange transactions are through the U.S. dollar. Ifthe transaction is expressed as the foreign currency per dollar this is known as whereas are expressed as dollars per foreign unit, (a) European terms; indirect (b) American terms; direct (©) American terms; European terms (@ European terms; American terms Topic: Foreign Exchange Market Terms Skill: Recognition ‘Answer: D The following is an example of an American term foreign exchange quote. @ 2018 (b) 08sers (©) 100we (@ None of the above Topic: Foreign Exchange Market Terms Skill: Recognition Answer, A S AER TOA E Intemational Financial Management ‘American and British meanings differ for the word billion, Therefore, when traders refer to an ‘American billion, they call it a/an (a) Kiwi (b) Loony (©) Unele Sam @ Yard Topic: Billion Skill: Recognition Answer: D 15, From the viewpoint ofa British investor, which of the following would be a direet quote in the forcign exchange market? (@) sF240ie () S150 (©) £0.85i6 (@) so.sore Topic: Direct Quote Skill: Recognition “Answer: C 16. Alan quote in the United States would be foreign units per dollar, while a/an quote would be in dollars per foreign currency unit (@) direct; direet (b) direct; indirect (©) indirect; indirect (@) indirect; direct Topic: Direct and Indirect Quotes Skill: Recognition ‘Answer: D 17, Ifthe direct quote for a U.S. investor for British pounds is $1.78/£, then the indirect quote for the USS. investor would be and the direct quote for the British investor would be (2) £0.56205; £0.56205 (b) S0.s62/e; £0.56215 (©) £1.78; £0.562/8, (@) £0.50208; $1-78/¢ Topic: Direct Quote Skill: Analytical Answer: A MEG EEAE International Financial Management ‘make money on currency exchanges by the difference between the price, oF ihe price they offer to pay, and the price, or the price at which they offer to sell the currency, (2) Dealers; ask; bid (b) Dealers; bids ask (©) Brokers; ask; bid (d) Brokers; bid; ask Topie: Dealers Skill: Recognition Answer: B S AER TOA E Intemational Financial Management Use the table below to answer problems 19-23 ‘Yen: Spot and Forward (3) Pound: Spot and Forward (6) Mid Rates Bid Ask Mid Rates Bid Ask Spot 142511420 114.30 T7863 1.7862 1.7868 Forward Rates 1 month 1406-20-18 17840 26 24 6 months n291 0-136 132 17108 160-154 Swaps 2 year 1020312321212 1.7631 “238-230 3 year 998814521422 1.7605 265 ~253 19, The current spot rate of dollars per pound as quoted in a newspaper is or (a) £1.7865iS; $0.5598/¢ (b) S$1.7862/¢; £0.5598/S (©) S1.7865/E; £0.5598/S (a) £1.7868)S; $0.5597/6 Topie: Spot Rate Calculation Skill: Analytical Answer: C 20, The one-month forward bid price for dollars as denominated in Japanese yen is, (a) -¥20 18 (© vi4.2/s @ M14 00/5 Topic: Forward Rates Skill: Analytical Answer: D) 21, The ask price for the two-year swap fora British pound is (@ Si7e1e (b) SL7638/¢ (©) 8230 (@ S238 Topic: Swap Rates Skill: Analytical Answer: B 22, According to the information provided in the table, the 6-month yen is selling ata forward of approximately per annum. (Use the mid rates to make your

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