Deck 7: The Foreign Exchange Markets

Question 1

Suppose it is 1995 and the following direct quotes are received for spot and one? month French francs in New York: .1160?684?Then the outright 30? day forward quote for the French franc was:

A) .1156?62
B) .1164?74
C) .1166?72
D) .1154?64

Answer 1

B

Question 2

overwhelming majority of foreign exchange transactions involve

A) multinational corporations buying and selling foreign exchange
B) importers and exporters buying and selling foreign exchange
C) banks buying and selling foreign exchange
D) governments buying and selling foreign exchange

Answer 2

C

Question 3

spot and 180?day forward rates for the euro are $and $respectively. The euro is said to be selling at a forward

A) discount of 6.9%
B) premium of 6.9%
C) discount of 1.4%
D) premium of 1.4%

Answer 3

D

Question 4

Suppose the spot direct quotes for the Italian euro and Swiss franc are $and $.1201?10, respectively. What is the direct quote for the Swiss franc in Milan?

A) €.00413?25/SFr
B) €.00422?31/SFr
C) €.0957-67/SFr
D) SFr.0957-67/€

Question 5

Suppose the spot direct quotes for the pound sterling and euro are $and $.1230?33, respectively. What is the direct quote for the pound in Paris?

A) €1.1339-73/£
B) €.8793-.8819/£
C) £.0808?12/€
D) £.0976?87/€

Question 6

___________ between a bank and a customer calls for a fixed delivery date, at a fixed exchange rate for a specified amount of one currency against another currency payment.

A) spot quotation
B) currency option
C) currency swap
D) forward contract

Question 7

is 1985 and suppose the 90?day forward quotes on the DM and the French franc are $.4002?10 and $.1180?90, respectively. What is the direct 90?day forward quote for the franc in Frankfurt?

A) 3.3625?54
B) 3.3631?92
C) .2943?74
D) .2949?68

Question 8

American terms refers to the

A) number of U.S. dollars per unit of foreign currency
B) number of foreign?currency units per U.S. dollar
C) quotation system found in the United States
D) bid?ask spread on the U.S. dollar

Question 9

the direct price of the dollar is DMin 1990 Frankfurt and transaction costs were .4% of the amount transacted, then the minimum-maximum direct quotes for the DM in New York were:

A) $.3968?4032
B) $2.4800?2.5200
C) $.3984?.4016
D) $2.4900?2.5100

Question 10

spot and 30?day forward rates for the Dutch euro are $and $respectively. The guilder is said to be selling at a forward

A) premium of 1.2%
B) premium of 3.5%
C) discount of 3.5%
D) discount of 1.2%

Question 11

Exports of goods and services by the United States by 2008 total more than _________ of gross domestic product.

A) 10%
B) 20%
C) 50%
D) 75%

Question 12

risk that a central bank will not make the necessary transfer of foreign currency to complete a currency settlement is known as ________ risk.

A) exchange rate
B) Herstatt
C) Interest-rate
D) settlement

Question 13

Trading on the foreign exchange market is

A) located in a physical headquarters in London
B) takes place within an organized exchange
C) conducted by licensed brokers from the London stock exchange
D) an electronically linked network of banks, brokers, and dealers

Question 14

Hedgers, mostly _____________, engage in forward contracts on the foreign exchange markets to protect the home currency value of various foreign currency-denominated assets and liabilities on their balance sheets.

A) commercial banks
B) public utilities
C) multinational corporations
D) speculators

Question 15

world's largest currency trading market is

A) New York
B) Frankfurt
C) Tokyo
D) London

Question 16

Suppose pound sterling is quoted at $and the Swiss franc is quoted at $0.6250-6What is the direct quote for the pound in Zurich?

A) 2.3035-70
B) 2.3018- 88
C) 2.3008-98
D) 2.3020-50

Question 17

Suppose the Brazilian Real is quoted at $0.9455-9510, and the Thai baht is quoted at $2What is the direct quote for the Real in Bangkok?

A) 27.1267-5673
B) 26.7801-9801
C) 25.2597-2700
D) 26.5524-8626

Question 18

Suppose it is 1990 and the spot direct quotes for the Swedish krona and French franc are $.1395?99 and $.1130?33, respectively. What is the direct quote for the krona in Paris?

A) 1.2312?81
B) 1.2435?37
C) .0806?11
D) .0973?81

Question 19

currency transactions are channeled through the worldwide ________ market which accounts for _______ of foreign exchange transactions.

A) stock, 50%
B) interbank, 50%
C) interbank, 95%
D) internet, 30%

Question 20

Traders on the foreign exchange market use ___________ to eliminate or cover the risk of loss on export or import orders denominated in foreign currencies.

A) currency options
B) forward contracts
C) money-market hedges
D) currency futures contracts

Question 21

December 3,2001, spot Japanese yen were sold at $0.00805Suppose the 180-day forward Japanese yen was selling at a annualized premium, what is the 180-day forward rate of the yen?

A) 0.008245
B) 0.008135
C) 0.008457
D) 0.010638

Question 22

the direct price of the dollar is DKK5 in Copenhagen and transaction costs are .5%, then the minimum?maximum direct quotes for the Danish krone in New York are

A) 4.9750?5.0250
B) 4.9500?5.0500
C) .1980?.2020
D) .1990?.2010

Question 23

Suppose it is January 1980 and the $/DM exchange rate is DM1 = $.35 and the DM/FF exchange rate is FF1 = DM.3What is the FF/$ exchange rate?

A) 3.226 French francs per dollar
B) 1.129 French francs per dollar
C) .886 French francs per dollar
D) 9.217 French francs per dollar

Question 24

Suppose the spot rate and forward rate for the British pound are $and $respectively. Assume the forward pound is selling at a annualized discount, what is the number of days of the forward contract?

A) 180 days
B) 120 days
C) 90 days
D) 60 days

Question 25

Suppose the quote for euro is $.9865?92/€. The percent spread is

A) 2.31%
B) 0.97%
C) 0.62%
D) 0.27%

Question 26

Suppose the following direct quotes are received for spot and one?month French francs in New York: .1260?684?Then the outright 30?day forward quote for the French is:

A) .1256?62
B) .1264?74
C) .1266?72
D) .1254?64

Question 27

American company that imports leather goods from England is most likely to be

A) long pounds
B) short pounds
C) can't tell

Question 28

Suppose the pound sterling is selling for $and the buying rate for the Swiss franc is $0.7Then the £/SFr cross rate is

A) £1 = SFr 0.4383
B) SFr 1 = £2.2817
C) £1 = SFr 2.2817
D) SFr 1 = £1.2817

Question 29

Suppose the direct quote for sterling in New York is $Then the direct quote for dollars in London is:

A) .7110?5
B) 2.6220?30
C) .7625?8
D) 1.3110?5

Question 30

Suppose one observed the following direct spot quotations in New York and London, respectively: $and £.8000?50. Arbitrage profits per $1 million equal

A) $637
B) $0
C) $1,268
D) $4,492