Chapter 18 Test Bank - Static
Student: ___________________________________________________________________________
1. An American Depositary Receipt is defined as a security:
A. that has been deposited in an interest-bearing account at a U.S. bank.
B. issued outside the U.S. that represents shares of a U.S. stock.
C. issued in the U.S. that represents shares of a foreign stock.
D. that has a guarantee of payment from a U.S. bank.
E. issued in multiple countries but denominated in U.S. currency.
2. You are given the exchange rate between the U.S. dollar and the Canadian dollar. You are
also given the exchange rate between the U.S. dollar and the Mexican peso. What is the
name given to the Canadian dollar per Mexican peso exchange rate derived from the
information that was provided?
A. Swap rate
B. Depositary rate
C. Forward rate
D. London Interbank rate
E. Cross-rate
3. Eurobonds are best defined as international bonds issued in _____ and denominated in
____.
A. a single country; multiple currencies
B. a single country; a single currency
C. multiple countries; multiple currencies
D. multiple countries; a single currency
E. Euroland; euros
4. Which one of the following is the best definition of Eurocurrency?
A. Any paper money used by a country that has adopted the euro as its common currency
B. Money deposited in a financial institution outside the country whose currency is
involved
C. Both paper and coins officially adopted under the euro system of coinage
D. U.S. dollars owned by any country that has adopted the euro as its currency
,E. Any exchange of funds between two countries that have adopted the euro as their official
currency
5. Which one of the following terms is used to describe international bonds issued in a
single country and generally denominated in that country's currency?
A. Eurobonds
B. American Depositary Receipts
C. Foreign bonds
D. Swaps
E. Gilts
6. Which one of the following is the rate that most international banks charge when they
loan Eurodollars to other banks?
A. ADR
B. LIBOR
C. Cross-rate
D. Gilt rate
E. Swap rate
7. Which of these is defined as an agreement to exchange two securities or two currencies?
A. Hedge
B. Swap
C. SWIFT
D. Gilt
E. Arbitrage
8. The market where euros, pesos, dollars, and pounds are traded is referred to as the:
A. ADR market.
B. LIBOR market.
C. gilt market.
D. euromarket.
E. foreign exchange market.
9. Which one of the following is the best universal definition of an exchange rate?
,A. Price of one country's currency expressed in terms of another country's currency
B. Number of foreign dollars that can be purchased for every one U.S. dollar paid
C. Price of a country's currency expressed in terms of that country's currency unit
D. Number of units of a currency that were originally required to obtain one euro when a
country adopted the euro as its official currency
E. Price that must be paid to obtain a good or service from another country
10. A trader in Switzerland just agreed to trade Swiss francs for British pounds based on
today's exchange rate. The trade is expected to settle tomorrow. What term best describes
this exchange?
A. Arbitrage transaction
B. Forward trade
C. Spot trade
D. Purchasing power parity
E. Interest rate parity
11. The spot exchange rate is the exchange rate that applies to a(n):
A. LIBOR transaction.
B. ADR transaction.
C. spot trade.
D. forward trade.
E. future transaction.
12. An agreement to exchange currencies sometime in the future is referred to as which
one of the following?
A. Forward trade
B. Hedge
C. Gilt
D. Forward exchange rate
E. Spot trade
13. Which one of the following is the agreed-upon exchange rate that is to be used when
currencies are exchanged at some point in the future based on an agreement made today?
A. Spot rate
, B. ADR rate
C. London Interbank Offer Rate
D. Forward exchange rate
E. Cross-rate
14. Which one of the following terms is used to identify the concept that exchange rates
vary to keep purchasing power constant among currencies?
A. Exchange rate equilibrium
B. Exchange rate parity
C. Universal parity
D. Market equilibrium
E. Purchasing power parity
15. Which of these states that the difference in interest rates between two countries is
equal to the percentage difference between the forward exchange rate and the spot
exchange rate?
A. Arbitrage equilibrium
B. Relative purchasing power parity
C. Absolute purchasing power parity
D. Interest rate parity
E. Cross-rate parity
16. Which term is defined as having international operations in a world where relative
currency values change?
A. Political risk
B. Relative purchasing power parity
C. Interest rate parity
D. Absolute purchasing power parity
E. Exchange rate risk
17. Which one of the following is the risk arising from changes in value caused by political
actions?
A. Exchange rate risk
B. Political risk
Student: ___________________________________________________________________________
1. An American Depositary Receipt is defined as a security:
A. that has been deposited in an interest-bearing account at a U.S. bank.
B. issued outside the U.S. that represents shares of a U.S. stock.
C. issued in the U.S. that represents shares of a foreign stock.
D. that has a guarantee of payment from a U.S. bank.
E. issued in multiple countries but denominated in U.S. currency.
2. You are given the exchange rate between the U.S. dollar and the Canadian dollar. You are
also given the exchange rate between the U.S. dollar and the Mexican peso. What is the
name given to the Canadian dollar per Mexican peso exchange rate derived from the
information that was provided?
A. Swap rate
B. Depositary rate
C. Forward rate
D. London Interbank rate
E. Cross-rate
3. Eurobonds are best defined as international bonds issued in _____ and denominated in
____.
A. a single country; multiple currencies
B. a single country; a single currency
C. multiple countries; multiple currencies
D. multiple countries; a single currency
E. Euroland; euros
4. Which one of the following is the best definition of Eurocurrency?
A. Any paper money used by a country that has adopted the euro as its common currency
B. Money deposited in a financial institution outside the country whose currency is
involved
C. Both paper and coins officially adopted under the euro system of coinage
D. U.S. dollars owned by any country that has adopted the euro as its currency
,E. Any exchange of funds between two countries that have adopted the euro as their official
currency
5. Which one of the following terms is used to describe international bonds issued in a
single country and generally denominated in that country's currency?
A. Eurobonds
B. American Depositary Receipts
C. Foreign bonds
D. Swaps
E. Gilts
6. Which one of the following is the rate that most international banks charge when they
loan Eurodollars to other banks?
A. ADR
B. LIBOR
C. Cross-rate
D. Gilt rate
E. Swap rate
7. Which of these is defined as an agreement to exchange two securities or two currencies?
A. Hedge
B. Swap
C. SWIFT
D. Gilt
E. Arbitrage
8. The market where euros, pesos, dollars, and pounds are traded is referred to as the:
A. ADR market.
B. LIBOR market.
C. gilt market.
D. euromarket.
E. foreign exchange market.
9. Which one of the following is the best universal definition of an exchange rate?
,A. Price of one country's currency expressed in terms of another country's currency
B. Number of foreign dollars that can be purchased for every one U.S. dollar paid
C. Price of a country's currency expressed in terms of that country's currency unit
D. Number of units of a currency that were originally required to obtain one euro when a
country adopted the euro as its official currency
E. Price that must be paid to obtain a good or service from another country
10. A trader in Switzerland just agreed to trade Swiss francs for British pounds based on
today's exchange rate. The trade is expected to settle tomorrow. What term best describes
this exchange?
A. Arbitrage transaction
B. Forward trade
C. Spot trade
D. Purchasing power parity
E. Interest rate parity
11. The spot exchange rate is the exchange rate that applies to a(n):
A. LIBOR transaction.
B. ADR transaction.
C. spot trade.
D. forward trade.
E. future transaction.
12. An agreement to exchange currencies sometime in the future is referred to as which
one of the following?
A. Forward trade
B. Hedge
C. Gilt
D. Forward exchange rate
E. Spot trade
13. Which one of the following is the agreed-upon exchange rate that is to be used when
currencies are exchanged at some point in the future based on an agreement made today?
A. Spot rate
, B. ADR rate
C. London Interbank Offer Rate
D. Forward exchange rate
E. Cross-rate
14. Which one of the following terms is used to identify the concept that exchange rates
vary to keep purchasing power constant among currencies?
A. Exchange rate equilibrium
B. Exchange rate parity
C. Universal parity
D. Market equilibrium
E. Purchasing power parity
15. Which of these states that the difference in interest rates between two countries is
equal to the percentage difference between the forward exchange rate and the spot
exchange rate?
A. Arbitrage equilibrium
B. Relative purchasing power parity
C. Absolute purchasing power parity
D. Interest rate parity
E. Cross-rate parity
16. Which term is defined as having international operations in a world where relative
currency values change?
A. Political risk
B. Relative purchasing power parity
C. Interest rate parity
D. Absolute purchasing power parity
E. Exchange rate risk
17. Which one of the following is the risk arising from changes in value caused by political
actions?
A. Exchange rate risk
B. Political risk
