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| 1 | |
One of the functions of the foreign exchange market is to provide some insurance against adverse consequences of unpredictable fluctuations in exchange rates. |
| | A) | True |
| | B) | False |
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| 2 | |
Hedging is when a firm insures itself against adverse consequences from unpredicted changes in future exchange rate. |
| | A) | True |
| | B) | False |
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| 3 | |
Currency swap is another term for the spot exchange rate since it is often used by travelers and tourists who exchange only small amounts of currency. |
| | A) | True |
| | B) | False |
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| 4 | |
Purchasing Power Parity (PPP) may not hold if many national markets are dominated by a handful of multinational enterprises that have sufficient market power to influence prices, control distribution channels, and differentiate product offerings between nations. |
| | A) | True |
| | B) | False |
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| 5 | |
An ineffective market is one in which prices do not reflect all available information, so forward exchange rates will not be the best predictors of future spot exchange rates. |
| | A) | True |
| | B) | False |
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| 6 | |
_________________________ is a use of the foreign exchange market and typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. |
| | A) | Treasury movement |
| | B) | Currency speculation |
| | C) | Cash rate maximization |
| | D) | Foreign exchange risk reduction |
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| 7 | |
The spot exchange rate: |
| | A) | is determined by the central banks of individual countries. |
| | B) | is most frequently used by businesses because of the relative certainty in determining the rates. |
| | C) | can change on a minute-by-minute basis. |
| | D) | is set by dealers and is unaffected by shifts in supply and demand. |
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| 8 | |
To insure or hedge against risk, an importer might want to engage in a _____________, which occurs when two parties agree to exchange currency and execute the deal at some specific time in the future. |
| | A) | forward exchange |
| | B) | currency swap |
| | C) | speculative trading |
| | D) | import insurance |
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| 9 | |
The _______________________ is not located in any one place, but is a global network of banks, brokers and foreign exchange dealers connected by electronic communications systems. |
| | A) | World Bank |
| | B) | international exchange system |
| | C) | foreign exchange market |
| | D) | Internet currency exchange |
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| 10 | |
When the growth in the ____________ is faster than the growth in __________, price inflation is fueled. |
| | A) | trade barriers; trade creation |
| | B) | a country's money supply; its output |
| | C) | a country's output; its money supply |
| | D) | forward exchange rates; spot exchange rates |
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| 11 | |
Evidence reveals that psychological factors play an important role in determining the expectations of market traders, and these expectations become self-fulfilling prophecies. When traders all move in one direction at the same time, this is known as _____________________________. |
| | A) | the stampede effect |
| | B) | unison trading |
| | C) | the bandwagon effect |
| | D) | consensus market movement |
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| 12 | |
Relative monetary growth, relative inflation rates and nominal interest rate differentials are all moderately good predictors of ____________________. |
| | A) | long-run changes in exchange rates |
| | B) | short-run changes in exchange rates |
| | C) | economic risk exposure |
| | D) | translation risk exposure |
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| 13 | |
Countertrade is used to overcome the _______ problem. |
| | A) | nonconvertibility |
| | B) | counterfeit |
| | C) | dumping |
| | D) | indexing |
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| 14 | |
Which of the following is NOT one of the three main categories of foreign exchange risk? |
| | A) | Transaction exposure |
| | B) | Translation exposure |
| | C) | Forward rate exposure |
| | D) | Economic exposure |
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| 15 | |
Translation exposure refers to ____________ on the reported financial statements of a company. |
| | A) | problems in doing business in more than one language, especially naming accounts |
| | B) | the impact of changes in currency exchange rates |
| | C) | changes in foreign accounting procedures |
| | D) | changes in foreign shareholder holdings |
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