International Financial Management
Exam 2 Questions with Correct
Answers
Which of the following is NOT true regarding the market for foreign exchange? -
ANSWERSAll of these are true
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. -
ANSWERSforeign exchange transaction
The ________ is the mechanism by which participants transfer purchasing power
between countries, obtain or provide credit for international trade transactions, and
minimize exposure to the risks of exchange rate changes. - ANSWERSforeign
exchange market
Which of the following is NOT a motivation identified by the authors as a function of the
foreign exchange market? - ANSWERSAll of these were identified as functions of the
foreign exchange market.
While trading in foreign exchange takes place worldwide, the major currency trading
centers are located in: - ANSWERSLondon, New York, and Tokyo.
The authors identify two tiers of foreign exchange markets: - ANSWERSinterbank and
client markets.
It is characteristic of foreign exchange dealers to: - ANSWERSact as market makers,
willing to buy and sell the currencies in which they specialize
Which of the following may be participants in the foreign exchange markets? -
ANSWERSall of these
________ seek to profit from trading in the market itself rather than having the foreign
exchange transaction being incidental to the execution of a commercial or investment
transaction. - ANSWERSspeculators and arbitrageurs
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. - ANSWERSspeculators; arbitrageurs
Foreign exchange ________ earn a profit by a bid-ask spread on currencies they
purchase and sell. Foreign exchange ________, on the other hand, earn a profit by
,bringing together buyers and sellers of foreign currencies and earning a commission on
each sale and purchase. - ANSWERSdealers; brokers
________ are agents who facilitate trading between dealers without themselves
becoming principals in the transaction - ANSWERSforeign exchange brokers
________ is NOT one of the three categories reported for foreign exchange. -
ANSWERSstrip transactions
A ________ transaction in the foreign exchange market requires an almost immediate
delivery (typically within two days) of foreign exchange. - ANSWERSspot
A ________ transaction in the foreign exchange market requires delivery of foreign
exchange at some future date. - ANSWERSforward
A forward contract to deliver British pounds for U.S. dollars could be described either as
________ or ________. - ANSWERSselling pounds forward; buying dollars forward
A common type of swap transaction in the foreign exchange market is the ________
where the dealer buys the currency in the spot market and sells the same amount back
to the same bank in the forward market. - ANSWERS"spot against forward"
The ________ is a derivative forward contract that was created in the 1990s. It has the
same characteristics and documentation requirements as traditional forward contracts
except that they are only settled in U.S. dollars and the foreign currency involved in the
transaction is not delivered. - ANSWERSnondeliverable forward
Which of the following is NOT true regarding nondeliverable forward (NDF) contracts? -
ANSWERSNDFs can only be traded by central banks.
A ________ transaction in the interbank market is the simultaneous purchase and sale
of a given amount of foreign exchange for two different value dates. - ANSWERSswap
Daily trading volume in the foreign exchange market was about ________ per
________ in 2015. - ANSWERS$5,100 billion; day
The greatest volume of daily foreign exchange transactions are: - ANSWERSswap
transactions
The United Kingdom and United States together make up nearly ________ of daily
currency trading. - ANSWERS60%
The top three currency pairs traded with the U.S. dollar are: - ANSWERSU.K. pound,
euro, Japanese yen
, The greatest amount of foreign exchange trading takes place in the following three
cities: - ANSWERSNew York, Singapore, and London.
The four currencies that constitute about 80% of all foreign exchange trading are: -
ANSWERSU.S. dollar, Japanese yen, euro, and U.K. pound.
A foreign exchange ________ is the price of one currency expressed in terms of
another currency. A foreign exchange ________ is a willingness to buy or sell at the
announced rate. - ANSWERSrate; quote
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. - ANSWERSEuropean terms;
American terms
The following is an example of an American term foreign exchange quote: -
ANSWERS$20/£
A/an ________ quote in the United States would be foreign units per dollar, while a/an
________ quote would be in dollars per foreign currency unit. - ANSWERSindirect;
direct
If the direct quote for a U.S. investor for British pounds is $1.43/£, then the indirect
quote for the U.S. investor would be ________ and the direct quote for the British
investor would be ________. - ANSWERS£0.699/$; £0.699/$
________ make money on currency exchanges by the difference between the
________ price, or the price they offer to pay, and the ________ price, or the price at
which they offer to sell the currency. - ANSWERSDealers; bid; ask
Refer to Table 5.1. The current spot rate of dollars per pound as quoted in a newspaper
is ________ or ________. - ANSWERS$1.4484/£; £0.6904/$
Refer to Table 5.1. The one-month forward bid price for dollars as denominated in
Japanese yen is: - ANSWERS¥129.62/$.
Refer to Table 5.1. The ask price for the two-year swap for a British pound is: -
ANSWERS$1.4257/£.
Refer to Table 5.1. According to the information provided in the table, the 6-month yen
is selling at a forward ________ of approximately ________ per annum. (Use the mid
rates to make your calculations.) - ANSWERSpremium; 2.09%
Given the following exchange rates, which of the multiple-choice choices represents a
potentially profitable intermarket arbitrage opportunity?¥129.87/$€1.1226/$€0.00864/¥ -
ANSWERS¥114.96/€
Exam 2 Questions with Correct
Answers
Which of the following is NOT true regarding the market for foreign exchange? -
ANSWERSAll of these are true
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. -
ANSWERSforeign exchange transaction
The ________ is the mechanism by which participants transfer purchasing power
between countries, obtain or provide credit for international trade transactions, and
minimize exposure to the risks of exchange rate changes. - ANSWERSforeign
exchange market
Which of the following is NOT a motivation identified by the authors as a function of the
foreign exchange market? - ANSWERSAll of these were identified as functions of the
foreign exchange market.
While trading in foreign exchange takes place worldwide, the major currency trading
centers are located in: - ANSWERSLondon, New York, and Tokyo.
The authors identify two tiers of foreign exchange markets: - ANSWERSinterbank and
client markets.
It is characteristic of foreign exchange dealers to: - ANSWERSact as market makers,
willing to buy and sell the currencies in which they specialize
Which of the following may be participants in the foreign exchange markets? -
ANSWERSall of these
________ seek to profit from trading in the market itself rather than having the foreign
exchange transaction being incidental to the execution of a commercial or investment
transaction. - ANSWERSspeculators and arbitrageurs
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. - ANSWERSspeculators; arbitrageurs
Foreign exchange ________ earn a profit by a bid-ask spread on currencies they
purchase and sell. Foreign exchange ________, on the other hand, earn a profit by
,bringing together buyers and sellers of foreign currencies and earning a commission on
each sale and purchase. - ANSWERSdealers; brokers
________ are agents who facilitate trading between dealers without themselves
becoming principals in the transaction - ANSWERSforeign exchange brokers
________ is NOT one of the three categories reported for foreign exchange. -
ANSWERSstrip transactions
A ________ transaction in the foreign exchange market requires an almost immediate
delivery (typically within two days) of foreign exchange. - ANSWERSspot
A ________ transaction in the foreign exchange market requires delivery of foreign
exchange at some future date. - ANSWERSforward
A forward contract to deliver British pounds for U.S. dollars could be described either as
________ or ________. - ANSWERSselling pounds forward; buying dollars forward
A common type of swap transaction in the foreign exchange market is the ________
where the dealer buys the currency in the spot market and sells the same amount back
to the same bank in the forward market. - ANSWERS"spot against forward"
The ________ is a derivative forward contract that was created in the 1990s. It has the
same characteristics and documentation requirements as traditional forward contracts
except that they are only settled in U.S. dollars and the foreign currency involved in the
transaction is not delivered. - ANSWERSnondeliverable forward
Which of the following is NOT true regarding nondeliverable forward (NDF) contracts? -
ANSWERSNDFs can only be traded by central banks.
A ________ transaction in the interbank market is the simultaneous purchase and sale
of a given amount of foreign exchange for two different value dates. - ANSWERSswap
Daily trading volume in the foreign exchange market was about ________ per
________ in 2015. - ANSWERS$5,100 billion; day
The greatest volume of daily foreign exchange transactions are: - ANSWERSswap
transactions
The United Kingdom and United States together make up nearly ________ of daily
currency trading. - ANSWERS60%
The top three currency pairs traded with the U.S. dollar are: - ANSWERSU.K. pound,
euro, Japanese yen
, The greatest amount of foreign exchange trading takes place in the following three
cities: - ANSWERSNew York, Singapore, and London.
The four currencies that constitute about 80% of all foreign exchange trading are: -
ANSWERSU.S. dollar, Japanese yen, euro, and U.K. pound.
A foreign exchange ________ is the price of one currency expressed in terms of
another currency. A foreign exchange ________ is a willingness to buy or sell at the
announced rate. - ANSWERSrate; quote
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. - ANSWERSEuropean terms;
American terms
The following is an example of an American term foreign exchange quote: -
ANSWERS$20/£
A/an ________ quote in the United States would be foreign units per dollar, while a/an
________ quote would be in dollars per foreign currency unit. - ANSWERSindirect;
direct
If the direct quote for a U.S. investor for British pounds is $1.43/£, then the indirect
quote for the U.S. investor would be ________ and the direct quote for the British
investor would be ________. - ANSWERS£0.699/$; £0.699/$
________ make money on currency exchanges by the difference between the
________ price, or the price they offer to pay, and the ________ price, or the price at
which they offer to sell the currency. - ANSWERSDealers; bid; ask
Refer to Table 5.1. The current spot rate of dollars per pound as quoted in a newspaper
is ________ or ________. - ANSWERS$1.4484/£; £0.6904/$
Refer to Table 5.1. The one-month forward bid price for dollars as denominated in
Japanese yen is: - ANSWERS¥129.62/$.
Refer to Table 5.1. The ask price for the two-year swap for a British pound is: -
ANSWERS$1.4257/£.
Refer to Table 5.1. According to the information provided in the table, the 6-month yen
is selling at a forward ________ of approximately ________ per annum. (Use the mid
rates to make your calculations.) - ANSWERSpremium; 2.09%
Given the following exchange rates, which of the multiple-choice choices represents a
potentially profitable intermarket arbitrage opportunity?¥129.87/$€1.1226/$€0.00864/¥ -
ANSWERS¥114.96/€
