FINC 514 EXAM 2 STUDY SET
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. - Answer: 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 - Answer: b.) 88 percent??
Suppose you observe the following exchange rates: €1 = $1.50 and £1 = $2.00.
Calculate the euro-pound cross-rate.
a.) €1.25 = £1.00
b.) €1.3333 = £1.00
c.) €3.00 = £1
,d.) £1.3333 = €1.00 - Answer: b.) €1.3333 = £1.00
S(€/£) = S($/£) / 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 - Answer: 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 - Answer: 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.
a.) €0.6104/CAD
b.) €0.6181/CAD
c.) €0.6094/CAD
d.) €0.6191/CAD - Answer: 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. - Answer: 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 - Answer: 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
a.) the dollar trading at a 10% discount to the euro.
b.) the dollar trading at an 8% premium to the euro.
c.) the dollar trading at a 5% premium to the Swiss franc.
d.) the dollar trading at a 5% discount to the euro. - Answer: a.) the dollar trading
at a 10% discount to the euro.
American Terms European Terms
Bank Quotations Bid Ask Bid Ask
Britishpounds $1.9712 $1.9717 £0.5072 £0.5073
Euros $1.4738 $1.4742 €0.6783 €0.6785
Using the table above, what is the bid price of euro in terms of pounds?
a.) £0.7479/€
b.) £0.7475/€
c.) €1.3378/£
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. - Answer: 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 - Answer: b.) 88 percent??
Suppose you observe the following exchange rates: €1 = $1.50 and £1 = $2.00.
Calculate the euro-pound cross-rate.
a.) €1.25 = £1.00
b.) €1.3333 = £1.00
c.) €3.00 = £1
,d.) £1.3333 = €1.00 - Answer: b.) €1.3333 = £1.00
S(€/£) = S($/£) / 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 - Answer: 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 - Answer: 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.
a.) €0.6104/CAD
b.) €0.6181/CAD
c.) €0.6094/CAD
d.) €0.6191/CAD - Answer: 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. - Answer: 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 - Answer: 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
a.) the dollar trading at a 10% discount to the euro.
b.) the dollar trading at an 8% premium to the euro.
c.) the dollar trading at a 5% premium to the Swiss franc.
d.) the dollar trading at a 5% discount to the euro. - Answer: a.) the dollar trading
at a 10% discount to the euro.
American Terms European Terms
Bank Quotations Bid Ask Bid Ask
Britishpounds $1.9712 $1.9717 £0.5072 £0.5073
Euros $1.4738 $1.4742 €0.6783 €0.6785
Using the table above, what is the bid price of euro in terms of pounds?
a.) £0.7479/€
b.) £0.7475/€
c.) €1.3378/£
