Deck 6: The Foreign Exchange Market

Question 1

Suppose sterling is quoted at $1.4419-36, and the Swiss franc is quoted at $0.6250-67. What is the direct quote for the pound in Zurich?
A) 2.3008-98

A) 2.3035-70
B) 2.3018- 88
B) 2.3020-50

Answer 1

C

Question 2

American terms refers to the
A) bid?ask spread on the U.S. dollar

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

Answer 2

D

Question 3

The world's largest currency trading market is located in the city of

A) New York
B) Frankfurt
C) Tokyo

Answer 3

D

Question 4

Suppose 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 5

What is the name of the international bank communications network for foreign exchange transactions that connects more than 7,000 banks and broker-dealers?

A) FedWire
B) CHIPS
C) SWIFT
D) UBS

Question 6

The spot and 30?day forward rates for the Dutch guilder are $.3075 and $.3120, respectively. The guilder is said to be selling at a forward

A) premium of 16.83%
B) premium of 17.56%
C) discount of 6.39%
D) discount of 15.10%

Question 7

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 8

Suppose the Brazilian Real is quoted at $0.9455-9510, and the Thai baht is quoted at $25.2513-398What 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 9

A ___________ 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 10

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 11

If the direct price of the dollar is 2.5 in Frankfurt and transaction costs are .4% of the amount transacted, then the minimum? maximum direct quotes for the DM in New York are:

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

Question 12

Suppose the spot direct quotes for the pound sterling and French franc are $1.3981?89 and $.1130?33, respectively. What is the direct quote for the pound in Paris?

A) 12.3398?3796
B) 12.3469?3726
C) .0808?12
D) .0976?87

Question 13

The spot and 180?day forward rates for the DM are $.3310 and $.3402, respectively. The DM is said to be selling at a forward

A) discount of 2.8%
B) premium of 2.8%
C) discount of 5.6%
D) premium of 5.6%

Question 14

Suppose 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 is:

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

Question 15

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 16

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 17

Suppose the spot direct quotes for the Italian lira and Swedish krone are $.00050?51 and $.1201?10, respectively. What is the direct quote for the Swedish krone in Milan?

A) .00413?25
B) .00422?31
C) 235.49?242.00
D) 237.81?245.03

Question 18

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

A) 10%

Question 19

The 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

Question 20

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 21

The $/DM exchange rate is DM1 = $.35 and the DM/FF exchange rate is FF1 = DM.31. What is the FF/$ 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 22

If the direct price of the dollar is 5 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 the spot rate and forward rate for the British pound are 1.4248 and 1.4179 respectively. Assume the forward pound is selling at a 1.94% 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 24

Suppose one observed the following direct spot quotations in New York and London, respectively: 1.2500?60 and .8000?50. Arbitrage profits per $1 million equal

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

Question 25

Suppose the direct quote for sterling in New York is 1.3110?5. Then the direct quote for dollars in London is:

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

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

Suppose the pound sterling is selling for $1.62 and the buying rate for the Swiss franc is $0.71. Then the £/SFr cross rate is

A) £1 = SFr 0.4383
B) SFr 1 = £2.2817
C) £1 = SFr 2.2817
D) a or b

Question 28

Suppose the quote for DM is DM 2.9865?92. Then the percent spread is

A) 2.31%
B) 0.97%
C) 0.62%
D) 0.09%

Question 29

On December 3,2001, spot Japanese yen were sold at $0.008058. Suppose the 180-day forward Japanese yen was selling at a 1.91% annualized premium, what is the 180-day forward rate of the yen?

A) 0.008245
B) 0.008135
C) 0.008457
D) can't tell

Question 30

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

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