Multiple Choice

Identify the choice that best completes the statement or answers the question.
Assume that a bank's bid rate on Swiss francs is 0.25 and its ask rate is 0.26. Its
1. bid-ask percentage spread is:
c. about 3.85%.
Chapter 3 a. 4.00%.
b. 4.26%.
d. about 4.17%.
C

The forward rate is the exchange rate used for immediate exchange of currencies.
b. false.
2. a. true.

Assume the Canadian dollar is equal to 0.51 and the Peruvian Sol is equal to
3. 0.16. The value of the Peruvian Sol in Canadian dollars is:
a. about .3621 Canadian dollars.
c. about 2.36 Canadian dollars.
b. about .3137 Canadian dollars.
d. about 2.51 Canadian dollars.

_______ is not a bank characteristic important to customers in need of foreign

4. exchange.
a. Quote competitiveness
b. Speed of execution
c. Forecasting advice
d. Advice about current market conditions
e. All of the above are important bank characteristics to customers in need of
foreign exchange.

LIBOR is:
5. a. the interest rate commonly charged for loans between banks.
b. the average inflation rate in European countries.
c. the maximum loan rate ceiling on loans in the international money market.
d. the maximum deposit rate ceiling on deposits in the international money
market.
e. the maximum interest rate offered on bonds that are issued in London.

From 1944 to 1971, the exchange rate between any two currencies was typically:
6. a. fixed within narrow boundaries.
b. floating, but subject to central bank intervention.
c. floating, and not subject to central bank intervention.
d. nonexistent; that is currencies were not exchanged, but gold was used to
pay for all foreign transactions.

Futures contracts are typically _______; forward contracts are typically _______.
7. a. sold on an exchange; sold on an exchange
b. offered by commercial banks; sold on an exchange
c. sold on an exchange; offered by commercial banks
d. offered by commercial banks; offered by commercial banks

When the foreign exchange market opens in the UK each morning, the opening
8. exchange rate quotations will be based on the:
a. closing prices in the U.S. during the previous day.
b. closing prices in Canada during the previous day.
c. prevailing prices in locations where the foreign exchange markets have
been open.
d. officially set by central banks before the U.S. market opens.

Under the gold standard, each currency was convertible into gold at a specified
9. rate, and the exchange rate between two currencies was determined by their

Bid-ask percentage spread = (0.26 - 0.25)/0.26 = 3.85%

0.16/0.51 = .3137
C

15 $1.10 = $16.50