FIN 582 Ch 3 Review Questions with Correct Answers

FIN 582 Ch 3 Review Questions with Correct Answers The forward rate is the exchange rate used for an immediate exchange of currencies. - Answer-False The ask quote is the price for which a bank offers to sell a currency. - Answer-True The existence of imperfect markets has prevented the internationalization of financial markets. - Answer-False Under the gold standard, each currency was convertible into gold at a specified rate, and the exchange rate between two currencies was determined by their relative convertibility rates per ounce of gold. - Answer-True An investor engaging in a transaction whereby he or she contracts to purchase British pounds one year from now is an example of a spot market transaction. - Answer-False The Single European Act prevented a trend toward increased globalization in the banking industry. - Answer-False The Basel Accord is an agreement among the major European countries to make regulations more uniform across European countries and to reduce taxes on goods traded between these countries. - Answer-False The Bretton Woods Agreement is an agreement to standardize banks' capital requirements across countries; the resulting capital ratios are computed using riskweighted assets. - Answer-False The interest rate commonly charged for loans between banks is called the cross rate. - Answer-False The strike price is also known as the premium price. - Answer-False A currency put option provides the right, but not the obligation, to buy a specific currency at a specific price within a specific period of time. - Answer-False A cross exchange rate expresses the amount of one foreign currency per unit of another foreign currency. - Answer-True A futures contract is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date. - Answer-True The term "eurobor" is widely used to reflect the total amount of euros borrowed by the firms in Europe per month to finance their growth. - Answer-False The term "eurobor" is widely used to reflect the interbank offer rate on euros. - AnswerTrue Large commercial banks play a major role in the international money market by accepting short-term deposits in large amounts (such as the equivalent of $1 million or more) and in various currencies, and channeling the money to corporations and government agencies that need to borrow those short-term funds in the desired currencies. - Answer-True