Question 1

From the perspective of the Australian foreign exchange market a direct quotation gives the quantity of foreign currency that can be obtained in exchange for one unit of the domestic currency.

Accepted Answer

In the Australian foreign exchange market, a direct quotation gives the amount of domestic currency needed to purchase one unit of foreign currency, not the other way around.

Question 2

Currency risk stems from market volatility.

Accepted Answer

False

Question 3

A strong dollar reduces the cost of imported goods,puts pressure on domestic producers to lower their prices to meet import competition and,as a result,increases inflation.

Accepted Answer

A strong dollar makes imported goods cheaper, which can lead to lower inflation as domestic producers may lower prices to remain competitive.

Question 4

In international trade transactions,the practice of accepting locally produced merchandise in lieu of money as payment for goods and services is known as countertrade.

Accepted Answer

Countertrade is a practice in international trade where goods and services are exchanged for other goods and services instead of using money as a medium of exchange.

Question 5

The TWI is an index of the price or value of the Australian dollar in terms of a weighted average of the US dollar,Canadian dollar and Euro.

Accepted Answer

The Trade Weighted Index (TWI) measures the Australian dollar against a basket of currencies from Australia's major trading partners, not just the US dollar, Canadian dollar, and Euro.

Question 6

A deficit in a nation's balance of payments means that collectively the nation is paying out more money abroad for imports and foreign services than they are collecting from foreigners who buy our exported goods and services.

Accepted Answer

A balance of payments deficit indicates that a country is spending more on foreign trade than it is earning, leading to more money flowing out than coming in.

Question 7

A surplus in the Australian balance of payments has been a persistent phenomenon in recent years.

Accepted Answer

Australia has typically experienced a current account deficit, although there have been periods of surplus, particularly due to strong commodity exports.

Question 8

If a country experiences a huge deficit in the current account it is thought to result in the 'exporting of jobs.'

Accepted Answer

A current account deficit often implies that a country is importing more goods and services than it is exporting, which can lead to domestic industries losing competitiveness and potentially result in job losses as production may shift abroad.

Question 9

If an Australian exporter agrees to receive payment in 60 days in pounds,the British importer has assumed the exchange risk in the transaction.

Accepted Answer

The Australian exporter assumes the exchange risk because they will receive payment in pounds, and the value of the pound relative to the Australian dollar may change unfavorably during the 60-day period.

Question 10

The IMF requires that countries reduce their budget deficits and the growth rate of their money supplies as a condition for lending them money.

Accepted Answer

The IMF often imposes conditions such as fiscal austerity measures and monetary policy adjustments to ensure that borrowing countries can repay their loans and stabilize their economies.

Question 11

A Canadian dollar cost $0.84 in U.S.dollars and later costs $0.86.The U.S.dollar has depreciated relative to the Canadian dollar.

Accepted Answer

When the value of the Canadian dollar increases from $0.84 to $0.86 in terms of U.S. dollars, it means you need more U.S. dollars to buy the same amount of Canadian dollars, indicating the U.S. dollar has depreciated relative to the Canadian dollar.

Question 12

A base currency is:

Accepted Answer

The base currency is the first-named currency in a foreign exchange quote, representing one unit of that currency expressed in terms of another currency.

Question 13

Currency risk is largely caused by country risk.

Accepted Answer

Currency risk is primarily caused by fluctuations in exchange rates, which can be influenced by various factors including economic conditions, interest rates, and geopolitical events, not solely by country risk.

Question 14

The current account in the balance of payments summarises a country's international balance of trade (exports less imports)and the payments to and the receipts from foreigners.

Accepted Answer

The answer of The current account in the balance of...

Question 15

A crawling peg regime is an exchange rate that is allowed to crawl or move within a defined or set band relative to another currency.

Accepted Answer

A crawling peg regime is an exchange rate system where a currency's value is allowed to fluctuate gradually over time, typically through small, pre-announced adjustments, rather than being confined to a set band.

Question 16

Today,the Euromarkets are vast,largely regulated money and capital markets with centres in Europe,the Middle East and Asia.

Accepted Answer

The Euromarkets are vast, largely unregulated money and capital markets with centers in Europe, the Middle East, and Asia.

Question 17

If a Canadian dollar costs $0.83 in U.S.dollars,a U.S.dollar costs a Canadian $1.00 in Canadian dollars.

Accepted Answer

The exchange rate is reciprocal. If 1 Canadian dollar costs $0.83 USD, then 1 USD costs approximately 1/0.83 = 1.20 Canadian dollars.

Question 18

A pegged exchange rate regime is an exchange rate determined by the supply and demand factors in the foreign exchange markets.

Accepted Answer

A pegged exchange rate regime is one where a country's currency value is fixed relative to another currency or a basket of currencies, rather than being determined by market forces.

Question 19

Terms currency is the currency in the foreign exchange quote where one unit is expressed in terms of another currency being traded.

Accepted Answer

The answer of Terms currency is the currency in the...

Question 20

Between the end of World War II and 1997,most industrialised nations adhered to a system of fixed exchange rates known as the managed floating system.

Accepted Answer

The system most industrialized nations adhered to between the end of World War II and 1971 was the Bretton Woods system, which was a fixed exchange rate system, not a managed floating system.

Quiz 12: Foreign Exchange Markets