FINC 514 EXAM 2 STUDY SET UPDATED
QUESTIONS AND CORRECT ANSWERS.
When a foreign currency trades at a discount in the forward market (Assume that exchange
rates are quoted in American terms)
a.) the forward exchange rate is less than one dollar
b.) the exchange rate is less than it was yesterday.
c.) the forward rate is more than the spot rate.
d.) the forward rate is less than the spot rate. - ANS d.) the forward rate is less than the spot
rate.?
It is common practice among currency traders worldwide to both price and trade currencies
against the U.S. dollar. In fact, 2019 BIS statistics indicate that about __________ of currency
trading in the world involves the U.S. dollar on one side of the transaction.
a.) 75 percent
b.) 88 percent
c.) 15 percent
d.) 45 percent - ANS b.) 88 percent??
Suppose you observe the following exchange rates: €1 = $1.50 and £1 = $2.00. Calculate the
euro-pound cross-rate.
a.) €1.25 = £1.00
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,b.) €1.3333 = £1.00
c.) €3.00 = £1
d.) £1.3333 = €1.00 - ANS b.) €1.3333 = £1.00
S(€/£) = S($/£) / S($/€) = (2/1) / (1.50/1), or (2/1) × (1/1.50) = €1.3333
Suppose you observe the following exchange rates: €1 = $1.50 and ¥120 = $1.00. Calculate the
euro-yen cross-rate.
a.) €1 = ¥180
b.) ¥133.33 = €1.00
c.) ¥80 = €1.00
d.) €1 = £2.50 - ANS a.) €1 = ¥180
Suppose that the current exchange rate is £1.00 = $2.00. The indirect quote, from the U.S.
perspective is
a.) £0.50 = $1.00.
b.) £1.00 = $0.50.
c.) £1.00 = $2.00.
d.) none of the options - ANS a.) £0.50 = $1.00.
USD equivalent
Country BID ASK
Canada (Dollar) 0.8653 0.8667
Euro € 1.4000 1.4200
What is the ASK cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price
that a currency dealer will take in euros to sell Canadian dollars.
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, a.) €0.6104/CAD
b.) €0.6181/CAD
c.) €0.6094/CAD
d.) €0.6191/CAD - ANS d.) €0.6191/CAD??
A recent survey of U.S. foreign exchange traders measured traders' perceptions about how fast
news events that cause movements in exchange rates actually change the exchange rate. The
survey respondents claim that the bulk of the adjustment to economic announcements
regarding unemployment, trade deficits, inflation, GDP, and the Federal funds rate takes place
within
a.) one hour.
b.) one day.
c.) one minute.
d.) one second. - ANS c.) one minute.
Though the real answer is about 10 seconds
You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is
quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a
bank quotes you a cross rate of £1.00 = €1.20 how much money can an astute trader make?
a.) No arbitrage is possible
b.) $40,000
c.) $41,667
d.) $1,160,000 - ANS c.) $41,667
The $/€ spot exchange rate is $1.50/€ and the 120-day forward exchange rate is $1.45/€. The
forward premium (discount) is
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QUESTIONS AND CORRECT ANSWERS.
When a foreign currency trades at a discount in the forward market (Assume that exchange
rates are quoted in American terms)
a.) the forward exchange rate is less than one dollar
b.) the exchange rate is less than it was yesterday.
c.) the forward rate is more than the spot rate.
d.) the forward rate is less than the spot rate. - ANS d.) the forward rate is less than the spot
rate.?
It is common practice among currency traders worldwide to both price and trade currencies
against the U.S. dollar. In fact, 2019 BIS statistics indicate that about __________ of currency
trading in the world involves the U.S. dollar on one side of the transaction.
a.) 75 percent
b.) 88 percent
c.) 15 percent
d.) 45 percent - ANS b.) 88 percent??
Suppose you observe the following exchange rates: €1 = $1.50 and £1 = $2.00. Calculate the
euro-pound cross-rate.
a.) €1.25 = £1.00
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,b.) €1.3333 = £1.00
c.) €3.00 = £1
d.) £1.3333 = €1.00 - ANS b.) €1.3333 = £1.00
S(€/£) = S($/£) / S($/€) = (2/1) / (1.50/1), or (2/1) × (1/1.50) = €1.3333
Suppose you observe the following exchange rates: €1 = $1.50 and ¥120 = $1.00. Calculate the
euro-yen cross-rate.
a.) €1 = ¥180
b.) ¥133.33 = €1.00
c.) ¥80 = €1.00
d.) €1 = £2.50 - ANS a.) €1 = ¥180
Suppose that the current exchange rate is £1.00 = $2.00. The indirect quote, from the U.S.
perspective is
a.) £0.50 = $1.00.
b.) £1.00 = $0.50.
c.) £1.00 = $2.00.
d.) none of the options - ANS a.) £0.50 = $1.00.
USD equivalent
Country BID ASK
Canada (Dollar) 0.8653 0.8667
Euro € 1.4000 1.4200
What is the ASK cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price
that a currency dealer will take in euros to sell Canadian dollars.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, a.) €0.6104/CAD
b.) €0.6181/CAD
c.) €0.6094/CAD
d.) €0.6191/CAD - ANS d.) €0.6191/CAD??
A recent survey of U.S. foreign exchange traders measured traders' perceptions about how fast
news events that cause movements in exchange rates actually change the exchange rate. The
survey respondents claim that the bulk of the adjustment to economic announcements
regarding unemployment, trade deficits, inflation, GDP, and the Federal funds rate takes place
within
a.) one hour.
b.) one day.
c.) one minute.
d.) one second. - ANS c.) one minute.
Though the real answer is about 10 seconds
You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is
quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a
bank quotes you a cross rate of £1.00 = €1.20 how much money can an astute trader make?
a.) No arbitrage is possible
b.) $40,000
c.) $41,667
d.) $1,160,000 - ANS c.) $41,667
The $/€ spot exchange rate is $1.50/€ and the 120-day forward exchange rate is $1.45/€. The
forward premium (discount) is
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