Question 1

Triangular arbitrage would take place if the _____ rate between two currencies was not _____ to the ratio of the two direct rates.

Accepted Answer

Triangular arbitrage occurs when the cross rate between two currencies is not equal to the ratio of the two direct rates, allowing traders to exploit the discrepancy for profit.

Question 2

When the German mark is quoted as 1.923 marks this quote is a(n):

Accepted Answer

A direct rate in foreign exchange is the amount of foreign currency that one unit of the home currency can buy. In this case, the quote means that 1 unit of the home currency can buy 1.923 units of German marks, making it a direct rate.

Question 3

Swiss franc denominated bonds issued in Switzerland by a French company are called:

Accepted Answer

Swiss franc denominated bonds issued in Switzerland by a non-Swiss company, such as a French company, are classified as foreign bonds. Foreign bonds are issued in the domestic market of a country by a foreign entity in the currency of the country where they are issued.

Question 4

You want to import $45,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.0218?

Accepted Answer

To find out how many rupees are needed to pay for the $45,000 worth of rugs, we can multiply the amount in dollars by the exchange rate:

$45,000 x 1/0.0218 = 2,064,220Rs

Therefore, the answer is choice C: 2,064,220Rs.

Question 5

The cross rate is the:

Accepted Answer

The cross rate is the exchange rate between two currencies that are not the official currencies of the country in which the exchange rate quote is given. It is often used when neither of the currencies are the domestic currency of the country where the quote is made.

Question 6

How many euros can you get for $2,500 given the following exchange rates?

Accepted Answer

The answer of How many euros can you get for...

Question 7

If the direct rate for French francs (FF) is $.143 and the direct rate for Australian dollars (A$) is $0.44, what must the cross rate between A$ and FF be to prevent triangular arbitrage?

Accepted Answer

To find the cross rate between Australian dollars (A$) and French francs (FF) that would prevent triangular arbitrage, you divide the direct rate of one currency by the direct rate of the other. Here, dividing the direct rate of Australian dollars ($0.44) by the direct rate of French francs ($0.143) gives a cross rate of approximately 3.08 FF per A$ (0.44 / 0.143 = 3.0769, rounded to FF3.08).

Question 8

When the German mark is quoted as $.52 this quote is a(n):

Accepted Answer

A direct rate is when the foreign currency is quoted directly against the domestic currency, in this case, the German mark is quoted directly in terms of how much one mark is worth in US dollars ($.52).

Question 9

In foreign exchange markets the swap rate is:

Accepted Answer

The swap rate in foreign exchange markets refers to the difference in the foreign exchange rates agreed upon for a roundtrip transaction, which involves buying and selling a currency at two different points in time.

Question 10

The forward rate market is dependent upon:

Accepted Answer

Forward rates are essentially market's expectations of what future spot rates will be. Over time, they tend to equal the actual future spot rates on average, as they incorporate all available information and expectations about future economic conditions.

Question 11

What kind of trade involves agreeing today on an exchange rate for settlement in future?

Accepted Answer

Forward trade involves agreeing today on an exchange rate for a transaction that will be settled at a future date.

Question 12

Which one of the following statements is correct assuming that exchange rates are quoted as units of foreign currency per dollar?

Accepted Answer

C) When a foreign currency appreciates in value, it means that it takes more dollars to buy the same amount of foreign currency, indicating that the foreign currency has strengthened relative to the dollar. This is a direct relationship where the appreciation of a foreign currency means it is getting stronger compared to the dollar.

Question 13

Assume that the Euro is selling in the spot market for $1.10. Simultaneously, in the 3-month forward market the Euro is selling for $1.12. Which one of the following statements correctly describes this situation?

Accepted Answer

The Euro is selling at a higher price in the forward market ($1.12) compared to the spot market ($1.10), indicating that the Euro is expected to appreciate relative to the dollar, or in other words, it is selling at a premium relative to the dollar.

Question 14

Currently, $1 will buy C$1.36 while $1.10 will buy €1. What is the exchange rate between the Canadian dollar and the euro?

Accepted Answer

The answer of Currently, $1 will buy C$1.36 while $1.10...

Question 15

The acronym LIBOR stands for:

Accepted Answer

LIBOR stands for London Interbank Offered Rate, which is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.

Question 16

The European Currency Unit (ECU) is (a):

Accepted Answer

The answer of The European Currency Unit (ECU) is (a):
...

Question 17

What kind of trade would involve settling a foreign exchange transaction in two days?

Accepted Answer

Spot trades in the foreign exchange market are settled in two business days.

Question 18

A Yankee bond is a:

Accepted Answer

A Yankee bond is specifically a foreign bond issued in the United States by a non-U.S. entity, denominated in U.S. dollars.

Question 19

The Deutschemark is currently selling for .72 U.S. dollars and also for .87 Canadian dollars. If you determined the rate of exchange between U.S. and Canadian dollars from this information you would have calculated:

Accepted Answer

The cross rate is calculated by taking the rate of exchange between two currencies (in this case, U.S. dollars and Canadian dollars) that are both quoted against a third currency (in this case, the Deutschemark). This does not involve the direct exchange rate between the two currencies but is derived from their common rates against a third currency.

Question 20

Dollar-denominated bonds issued in several European countries by a U.S. company are called:

Accepted Answer

Eurobonds are bonds issued in a currency other than the currency of the country or market in which they are issued. When a U.S. company issues bonds in Europe in dollars, they are considered Eurobonds.

Quiz 32: International Corporate Finance

Triangular arbitrage would take place if the _ rate between two currencies was not _ to the ratio of the two direct rates.

When the German mark is quoted as 1.923 marks this quote is a(n) :