FIN 350 Week 8 Quiz – Strayer
Click on the Link Below to
Purchase A+ Graded Course Material
Quiz
7 Chapter 16 and 17
Chapter
16—Foreign Exchange Derivative Markets
1. At
any given point in time, the price at which banks will buy a currency is ____
the price at which they sell it.
|
a.
|
higher than
|
|
b.
|
lower than
|
|
c.
|
the same as
|
|
d.
|
none of the above
|
2. Which
of the following is most likely to provide currency forward contracts to their
customers?
|
a.
|
commercial banks
|
|
b.
|
international mutual funds
|
|
c.
|
brokerage firms
|
|
d.
|
insurance companies
|
3. The
____ allowed for the devaluation of the dollar in 1971.
|
a.
|
Bretton Woods Agreement
|
|
b.
|
Louvre Accord
|
|
c.
|
Smithsonian Agreement
|
|
d.
|
none of the above
|
4. The
Bretton Woods Era was the era
|
a.
|
of free-floating exchange rates.
|
|
b.
|
of floating rates without boundaries, but subject
to government intervention.
|
|
c.
|
in which governments maintained exchange rates
within 1 percent of a specified rate.
|
|
d.
|
in which exchange rates were maintained within 10
percent of a specified rate.
|
5. A
system whereby exchange rates are market determined without boundaries but
subject to government intervention is called
|
a.
|
a dirty float.
|
|
b.
|
a free float.
|
|
c.
|
the gold standard.
|
|
d.
|
the Bretton Woods era.
|
6. A
system whereby one currency is maintained within specified boundaries of
another currency or unit of account is a
|
a.
|
pegged system.
|
|
b.
|
free float.
|
|
c.
|
dirty float.
|
|
d.
|
managed float.
|
7. A
country that pegs its currency is still able to maintain complete control over
its local interest rates.
a.
True
b.
False
8. If
the demand for British pounds ____, the pound will ____, other things being
equal.
|
a.
|
increases; appreciate
|
|
b.
|
decreases; appreciate
|
|
c.
|
increases; depreciate
|
|
d.
|
B and C
|
9. A(n)
____ in the supply of euros for sale will cause the euro to ____.
|
a.
|
increase; appreciate
|
|
b.
|
increase; depreciate
|
|
c.
|
decrease; depreciate
|
|
d.
|
none of the above
|
10. Beginning
with an equilibrium situation, if European inflation suddenly ____ than U.S.
inflation, this forced ____ pressure on the value of the euro.
|
a.
|
becomes much higher; upward
|
|
b.
|
becomes much higher; downward
|
|
c.
|
becomes much less; upward
|
|
d.
|
becomes much less; downward
|
|
e.
|
B and C
|
11. Purchasing
Power Parity suggests that the exchange rate will on average change by a percentage
that reflects the ____ differential between two countries.
|
a.
|
income
|
|
b.
|
interest rate
|
|
c.
|
inflation
|
|
d.
|
tax
|
12. In
reality, exchange rates do not always change as suggested by purchasing power
parity.
a.
True
b.
False
13. If
U.S. interest rates suddenly become much higher than European interest rates
(and if it does not cause concern about higher inflation there), the U.S.
demand for euros would ____, and the supply of euros to be exchanged for
dollars would ____, other factors held constant.
|
a.
|
increase; increase
|
|
b.
|
increase; decrease
|
|
c.
|
decrease; increase
|
|
d.
|
decrease; decrease
|
14. Assume
interest rate parity exists. If the spot rate on the British pound is $2 and
the 1-year British interest rate is 7 percent, and the 1-year U.S. interest
rate is 11 percent, what is the pound's forward discount or premium?
|
a.
|
3.74 percent premium
|
|
b.
|
3.74 percent discount
|
|
c.
|
3.60 percent premium
|
|
d.
|
3.60 percent discount
|
15. When
a government influences factors, such as inflation, interest rates, or income,
in order to affect currency's value, this is an example of
|
a.
|
direct intervention.
|
|
b.
|
indirect intervention.
|
|
c.
|
a freely floating system.
|
|
d.
|
a pegged system.
|
16. Which
of the following statements is incorrect?
|
a.
|
Central banks often consider adjusting a
currency's value to influence economic conditions.
|
|
b.
|
If the U.S. central bank wishes to stimulate the
economy, it could weaken the dollar.
|
|
c.
|
A weaker dollar could cause U.S. inflation by
reducing foreign competition.
|
|
d.
|
Direct intervention occurs when the central bank
influences the factors that determine the dollar's value.
|
17. Direct
intervention is always extremely effective.
a.
True
b.
False
18. If
the U.S. government imposed trade restrictions on U.S. imports, this would ____
the U.S. demand for foreign currencies, and would place ____ pressure on the
values of foreign currencies (with respect to the dollar).
|
a.
|
increase; upward
|
|
b.
|
increase, downward
|
|
c.
|
limit; upward
|
|
d.
|
limit; downward
|
19. If
a commercial bank expects the euro to appreciate against the dollar, it may
take a ____ position in euros and a ____ position in dollars.
|
a.
|
short; short
|
|
b.
|
long; short
|
|
c.
|
short; long
|
|
d.
|
long; long
|
20. Generally,
a ____ home currency can ____ domestic economic growth.
|
a.
|
weak; dampen
|
|
b.
|
strong; stimulate
|
|
c.
|
strong; dampen
|
|
d.
|
A and B
|
21. A
____ home currency can ____ domestic inflation.
|
a.
|
strong; increase
|
|
b.
|
weak; decrease
|
|
c.
|
strong; decrease
|
|
d.
|
A and B
|
22. If
the forward rate of a foreign currency ____ the existing spot rate, the forward
rate will exhibit a ____.
|
a.
|
exceeds; discount
|
|
b.
|
is below; premium
|
|
c.
|
is below; discount
|
|
d.
|
A and B
|
23. ____
forecasting involves the use of historical exchange rate data to predict future
values.
|
a.
|
Technical
|
|
b.
|
Fundamental
|
|
c.
|
Market-based
|
|
d.
|
Mixed
|
24. ____
forecasting is usually based on either the spot rate or the forward rate.
|
a.
|
Technical
|
|
b.
|
Fundamental
|
|
c.
|
Market-based
|
|
d.
|
Mixed
|
25. Fundamental
forecasting has been found to be consistently superior to the other forecasting
techniques.
a.
True
b.
False
26. Which
of the following is not a method of forecasting exchange rate volatility?
|
a.
|
using the volatility of historical exchange rate
movements
|
|
b.
|
using a time series of volatility patterns in
previous periods
|
|
c.
|
using the volatility of future exchange rate
movements
|
|
d.
|
using the exchange rate's implied standard
deviation
|
27. Assume
the following information.
|
•
|
Interest rate on borrowed euros is 5 percent
annualized
|
|
•
|
Interest rate on dollars loaned out is 6 percent
annualized
|
|
•
|
Spot rate for €0.83 per dollar (one € = $1.20)
|
|
•
|
Expected spot rate in five days is €0.85 per
dollar
|
|
•
|
Alonso Bank can borrow €10 million
|
What
is the euro profit to Alonso Bank over the five-day period from shorting euros
and going long on dollars?
|
a.
|
€200,311.11
|
|
b.
|
€207,111.11
|
|
c.
|
€201,555.56
|
|
d.
|
none of the above
|
28. Which
of the following statements is incorrect?
|
a.
|
Forward contracts are contracts typically
negotiated with a commercial bank that allow the purchase or sale of a
specified amount of a particular foreign currency at a specified exchange
rate on a specified future date.
|
|
b.
|
The forward market is located in New York City.
|
|
c.
|
Many of the commercial banks that offer foreign
exchange on a spot basis also offer forward transactions for the widely
traded currencies.
|
|
d.
|
Forward contracts can hedge a corporation's risk
that a currency's value may appreciate over time.
|
29. If
the spot rate of the British pound is $2, and the 180-day forward rate is
$2.05, what is the annualized premium or discount?
|
a.
|
2.5 percent discount
|
|
b.
|
2.5 percent premium
|
|
c.
|
10 percent premium
|
|
d.
|
5 percent discount
|
|
e.
|
5 percent premium
|
30. Currency
futures contracts differ from forward contracts in that they
|
a.
|
are an obligation.
|
|
b.
|
are not an obligation.
|
|
c.
|
are standardized.
|
|
d.
|
can specify any amount and maturity date.
|
31. If
the spot rate ____ the exercise price, a currency ____ option would not be
exercised.
|
a.
|
remains below; call
|
|
b.
|
remains below; put
|
|
c.
|
remains below; put
|
|
d.
|
A and B
|
32. The
pegged exchange rate system is no longer used by any countries.
a.
True
b.
False
33. If
a firm planning to hedge receivables is certain of the future direction a spot
rate will move, and requires a tailor-made hedge in terms of amount and
maturity date, it should use a
|
a.
|
call options contract traded on an exchange.
|
|
b.
|
futures contract traded on an exchange.
|
|
c.
|
forward contract.
|
|
d.
|
put options contract traded on an exchange.
|
34. Assume
that a British pound put option has a premium of $.03 per unit, and an exercise
price of $1.60. The present spot rate is $1.61. The expected future spot rate
on the expiration date is $1.52. The option will be exercised on this date if
at all. What is the expected per unit net gain (or loss) resulting from
purchasing the put option?
|
a.
|
$.01 loss
|
|
b.
|
$.09 loss
|
|
c.
|
$.09 gain
|
|
d.
|
$.05 gain
|
35. The
speculative risk of purchasing a ____ is that the foreign currency value ____
over time.
|
a.
|
put option; increases
|
|
b.
|
put option; decreases
|
|
c.
|
call option; increases
|
|
d.
|
futures contract; increases
|
36. Bank
A asks $.555 for Swiss francs and Banks B and C are willing to pay $.557 for
francs. An institution could capitalize on these differences by engaging in
|
a.
|
covered interest arbitrage.
|
|
b.
|
triangular arbitrage.
|
|
c.
|
locational arbitrage.
|
|
d.
|
witching hour arbitrage.
|
37. According
to interest rate parity, if the interest rate in a foreign country is ____ than
in the home country, the forward rate of the foreign country will have a ____.
|
a.
|
higher; discount
|
|
b.
|
lower; premium
|
|
c.
|
higher; premium
|
|
d.
|
A and B
|
38. ____
serve as financial intermediaries in the foreign exchange market by buying or
selling currencies to accommodate customers.
|
a.
|
Pension funds
|
|
b.
|
International mutual funds
|
|
c.
|
Insurance companies
|
|
d.
|
Commercial banks
|
|
e.
|
None of the above
|
39. In
the Wall Street Journal, you observe that the British pound (£) is
quoted for $1.65. The Australian dollar (A$) is quoted for $0.60. What is the
value of the Australian dollar in British pounds?
|
a.
|
A$2.75
|
|
b.
|
A$0.36
|
|
c.
|
£2.75
|
|
d.
|
£0.36
|
|
e.
|
none of the above
|
40. If
European inflation suddenly becomes much higher than U.S. inflation, the U.S.
demand for European goods will ____. In addition, the supply of euros to be
sold for dollars will ____; both forces will place ____ pressure on the value
of the euro.
|
a.
|
increase; decline; upward
|
|
b.
|
increase; decline; downward
|
|
c.
|
decrease; increase; upward
|
|
d.
|
decrease; increase; downward
|
|
e.
|
none of the above
|
41. If
British interest rates suddenly increase substantially relative to U.S.
interest rates, the demand by U.S. investors for British pounds ____, the
supply of British pounds to be sold in exchange for dollars ____, and the
British pound will ____.
|
a.
|
increases; decreases; appreciate
|
|
b.
|
increases; decreases; depreciate
|
|
c.
|
decreases; increases; appreciate
|
|
d.
|
decreases; increases; depreciate
|
|
e.
|
none of the above
|
42. Assume
the following information.
|
•
|
Interest rate on borrowed euros is 5 percent
annualized.
|
|
•
|
Interest rate on dollars loaned out is 6 percent
annualized.
|
|
•
|
Spot rate is 1.10 euros per dollar (one euro =
$0.909).
|
|
•
|
Expected spot rate in five days is 1.15 euros per dollar.
|
|
•
|
Fabrizio Bank can borrow 10 million euros.
|
If
Fabrizio Bank attempts to capitalize on the above information, its profit over
the five-day period is
|
a.
|
2,653,597.22 euros.
|
|
b.
|
455,266.81 euros.
|
|
c.
|
452,426.04 euros.
|
|
d.
|
none of the above
|
43. A
country that pegs its exchange rate to another exchange rate does not have
complete control over its interest rates.
a.
True
b.
False
44. The
euro is presently pegged to the British pound in order to stabilize
international payments between European countries.
a.
True
b.
False
45. Financial
institutions rarely use the forward market.
a.
True
b.
False
46. If
the quoted cross rate between two foreign currencies is not aligned with the
two corresponding exchange rates, investors can profit from triangular
arbitrage.
a.
True
b.
False
47. The
indirect exchange rate specifies the value of the currency in U.S. dollars.
a.
True
b.
False
48. The
forward rate premium is dictated by the national income differential of the two
currencies.
a.
True
b.
False
49. The
potential benefits from using foreign exchange derivatives are independent of
the expected exchange rate movements.
a.
True
b.
False
50. The
forward rate is the exchange rate for immediate delivery.
a.
True
b.
False
51. The
Smithsonian Agreement allowed for a devaluation of the dollar and for a
widening of the boundaries within which currencies were allowed to fluctuate.
a.
True
b.
False
52. A
country that pegs its currency does not have complete control over its local
interest rates, as its interest rates must be aligned with the interest rates
of the currency to which it is tied.
a.
True
b.
False
53. Exchange
rates usually change precisely as suggested by the purchasing power parity
(PPP) theory.
a.
True
b.
False
54. Central
bank intervention can be overwhelmed by market forces and may not always
succeed in reversing exchange rate movements.
a.
True
b.
False
55. When
countries experience substantial net outflows of funds, they commonly use
indirect intervention by raising interest rates to discourage excessive
outflows of funds and therefore limit any downward pressure on the value of
their currency.
a.
True
b.
False
Comments
Post a Comment