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INTERNATIONAL FINANCE MIDTERM
EXAM BANK 2025/2026 | ACCURATE
CURRENTLY TESTING AND FREQUENTLY
TESTED EXAM VERSIONS WITH
ACCURATE REAL EXAM QUESTIONS AND
ANSWERS WITH RATIONALES AND A
STUDY GUIDE
1) A/An ________ 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.
A) Eurodollar transaction
B) import/export exchange
C) foreign exchange transaction
D) interbank market transaction - ANSWER ✔✔- C
2) In the foreign exchange market, ________ seek all of their profit from exchange
rate changes while ________ seek to profit from simultaneous exchange rate
differences in different markets.
A) wholesalers; retailers
B) central banks; treasuries
C) speculators; arbitrageurs
D) dealers; brokers - ANSWER ✔✔- C
3) A ________ transaction in the foreign exchange market requires an almost
immediate delivery (typically within two days) of foreign exchange.
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A) spot
B) forward
C) futures
D) none of the above - ANSWER ✔✔- A
4) Most foreign exchange transactions are through the U.S. dollar. If the
transaction is expressed as the foreign currency per dollar this known as ________
whereas ________ are expressed as dollars per foreign unit.
A) European terms; indirect
B) American terms; direct
C) American terms; European terms
D) European terms; American terms - ANSWER ✔✔- D
The following is an example of an American term foreign exchange quote:
A) $20/£
B) €0.85/$
C) ¥100/€
D) none of the above - ANSWER ✔✔- A
The price of a Big Mac in the U.S. is $3.41 and the price in Mexico is Peso 29.0.
What is the implied PPP of the Peso per dollar?
A) Peso 8.50/$1
B) Peso 10.8/$1
C) Peso 11.76/$1
D) None of the above - ANSWER ✔✔- A
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According to the Big Mac Index, the implied PPP exchange rate is Mexican peso
8.50/$1 but the actual exchange rate is peso 10.80/$1. Thus, at current exchange
rates the peso appears to be ________ by ________.
A) overvalued; approximately 21%
B) overvalued; approximately 27%
C) undervalued; approximately 21%
D) undervalued; approximately 27% - ANSWER ✔✔- C
One year ago the spot rate of U.S. dollars for Canadian dollars was $1/C$1. Since
that time the rate of inflation in the U.S. has been 4% greater than that in Canada.
Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars
for Canadian dollars should be approximately:
A) $0.96/C$.
B) $1/C$.
C) $1.04/C$.
D) Relative PPP provides no guide for this type of question. - ANSWER ✔✔- C
Assume the current U.S. dollar-British spot rate is 0.6993£/$. If the current
nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain
is 6%, what is the approximate forward exchange rate for 360 days?
A) £1.42/$
B) £1.43/$
C) £0.6993/$
D) £0.7060/$ - ANSWER ✔✔- D
The current U.S. dollar-yen spot rate is 125¥/$. If the 90-day forward exchange
rate is 127 ¥/$ then the yen is selling at a per annum ________ of ________.
A) premium; 1.57%
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B) premium; 6.30%
C) discount; 1.57%
D) discount; 6.30% - ANSWER ✔✔- D
A foreign currency ________ contract calls for the future delivery of a standard
amount of foreign exchange at a fixed time, place, and price.
A) futures
B) forward
C) option
D) swap - ANSWER ✔✔- A
A speculator in the futures market wishing to lock in a price at which they could
________ a foreign currency will ________ a futures contract.
A) buy; sell
B) sell; buy
C) buy; buy
D) none of the above - ANSWER ✔✔- C
Peter Simpson thinks that the U.K. pound will cost $1.43/£ in six months. A 6-
month currency futures contract is available today at a rate of $1.44/£. If Peter was
to speculate in the currency futures market, and his expectations are correct, which
of the following strategies would earn him a profit?
A) Sell a pound currency futures contract.
B) Buy a pound currency futures contract.
C) Sell pounds today.
D) Sell pounds in six months. - ANSWER ✔✔- A
INTERNATIONAL FINANCE MIDTERM
EXAM BANK 2025/2026 | ACCURATE
CURRENTLY TESTING AND FREQUENTLY
TESTED EXAM VERSIONS WITH
ACCURATE REAL EXAM QUESTIONS AND
ANSWERS WITH RATIONALES AND A
STUDY GUIDE
1) A/An ________ 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.
A) Eurodollar transaction
B) import/export exchange
C) foreign exchange transaction
D) interbank market transaction - ANSWER ✔✔- C
2) In the foreign exchange market, ________ seek all of their profit from exchange
rate changes while ________ seek to profit from simultaneous exchange rate
differences in different markets.
A) wholesalers; retailers
B) central banks; treasuries
C) speculators; arbitrageurs
D) dealers; brokers - ANSWER ✔✔- C
3) A ________ transaction in the foreign exchange market requires an almost
immediate delivery (typically within two days) of foreign exchange.
,2|Page
A) spot
B) forward
C) futures
D) none of the above - ANSWER ✔✔- A
4) Most foreign exchange transactions are through the U.S. dollar. If the
transaction is expressed as the foreign currency per dollar this known as ________
whereas ________ are expressed as dollars per foreign unit.
A) European terms; indirect
B) American terms; direct
C) American terms; European terms
D) European terms; American terms - ANSWER ✔✔- D
The following is an example of an American term foreign exchange quote:
A) $20/£
B) €0.85/$
C) ¥100/€
D) none of the above - ANSWER ✔✔- A
The price of a Big Mac in the U.S. is $3.41 and the price in Mexico is Peso 29.0.
What is the implied PPP of the Peso per dollar?
A) Peso 8.50/$1
B) Peso 10.8/$1
C) Peso 11.76/$1
D) None of the above - ANSWER ✔✔- A
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According to the Big Mac Index, the implied PPP exchange rate is Mexican peso
8.50/$1 but the actual exchange rate is peso 10.80/$1. Thus, at current exchange
rates the peso appears to be ________ by ________.
A) overvalued; approximately 21%
B) overvalued; approximately 27%
C) undervalued; approximately 21%
D) undervalued; approximately 27% - ANSWER ✔✔- C
One year ago the spot rate of U.S. dollars for Canadian dollars was $1/C$1. Since
that time the rate of inflation in the U.S. has been 4% greater than that in Canada.
Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars
for Canadian dollars should be approximately:
A) $0.96/C$.
B) $1/C$.
C) $1.04/C$.
D) Relative PPP provides no guide for this type of question. - ANSWER ✔✔- C
Assume the current U.S. dollar-British spot rate is 0.6993£/$. If the current
nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain
is 6%, what is the approximate forward exchange rate for 360 days?
A) £1.42/$
B) £1.43/$
C) £0.6993/$
D) £0.7060/$ - ANSWER ✔✔- D
The current U.S. dollar-yen spot rate is 125¥/$. If the 90-day forward exchange
rate is 127 ¥/$ then the yen is selling at a per annum ________ of ________.
A) premium; 1.57%
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B) premium; 6.30%
C) discount; 1.57%
D) discount; 6.30% - ANSWER ✔✔- D
A foreign currency ________ contract calls for the future delivery of a standard
amount of foreign exchange at a fixed time, place, and price.
A) futures
B) forward
C) option
D) swap - ANSWER ✔✔- A
A speculator in the futures market wishing to lock in a price at which they could
________ a foreign currency will ________ a futures contract.
A) buy; sell
B) sell; buy
C) buy; buy
D) none of the above - ANSWER ✔✔- C
Peter Simpson thinks that the U.K. pound will cost $1.43/£ in six months. A 6-
month currency futures contract is available today at a rate of $1.44/£. If Peter was
to speculate in the currency futures market, and his expectations are correct, which
of the following strategies would earn him a profit?
A) Sell a pound currency futures contract.
B) Buy a pound currency futures contract.
C) Sell pounds today.
D) Sell pounds in six months. - ANSWER ✔✔- A
