Deck 5: Foreign Exchange Markets

Question 1

Differences between the futures and forward markets include all of the following except _______.

A) Futures contracts are for specific sizes, forward contracts can be of any amount
B) Forward markets are highly regulated, while futures markets have little regulation
C) Futures contracts can be liquidated prior to maturity while forward contracts cannot
D) Futures market rates are more volatile than forward market rates

Answer 1

B

Question 2

A speculator predicts that the US dollar will depreciate relative to the swiss franc. They should _______.

A) Buy a put option on the swiss franc
B) Buy a put option on the US dollar
C) Buy a call option on the swiss franc
D) Purchase pound sterling in the forward market

Answer 2

B

Question 3

Utilizing historical charts to predict foreign exchange movements is a process known as ______.

A) Fundamental forecasting
B) Astrology
C) Technical forecasting
D) Covered interest arbitrage

Answer 3

C

Question 4

Major risks that a business faces in the course of international business activity include all of the following except _______.

A) Tax exposure
B) Economic exposure
C) Transaction exposure
D) Inflation exposure

Question 5

The method of accounting where monetary items are translated at their current rates, while non-monetary items are translated at rates that preserve their original measurement bases is known as the _______ method.

A) Monetary non-monetary method
B) Temporal method
C) Current method
D) Translation method

Question 6

The following island locations have historically been considered to be tax havens except _____.

A) Cayman Islands
B) Bermuda
C) Mauritius
D) Staten Island

Question 7

Foreign exchange trades in the _____ market typically consummate sooner than in the ______ market.

A) Futures, forward
B) Forward, spot
C) Spot, forward
D) Currency, stock

Question 8

An exchange rate of US$1 to 0.556 Canadian dollars represents

A) An indirect quote for holders of US dollars
B) An opportunity for Canadian exports to sell more products in the US
C) A direct quote for holders of US dollars
D) Both A and B above

Question 9

If 5 Danish Kroner buys US$1, and if US$1 buys 2.5 pounds sterling, the cross exchange rate for Danish Kroner and British pounds is ______.

A) 1 Danish Kroner to 0.5 British pounds
B) Cannot be determined with this information
C) 2 Danish Kroner to 1 British pound
D) 2 British pound to 1 Danish Kroner

Question 10

A direct quote on the Frankfurt market would be €1.00 = US$1.30.

Question 11

Selling short means that you are betting that currency values decline in the future.

Question 12

A firm that expects to receive pound sterling in ninety days could utilize a forward short position to protect its interests if the firm's management felt that the pound was set to increase in value.

Question 13

Currency futures are primarily traded on the Chicago Mercantile Exchange.

Question 14

Transparency exposure is one of the four types of exposure that a firm faces in the course of international business activity.