Question 1

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 2

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 calculate how many rupees are needed to pay for $45,000 worth of rugs, we need to divide $45,000 by the exchange rate of one rupee to dollars:

$45,000 ÷ 0.0218 = 2,064,220Rs

Therefore, the answer is C) 2,064,220Rs.

Question 3

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

Accepted Answer

When a foreign currency appreciates in value, it means that it can buy more dollars, hence it strengthens relative to the dollar.

Question 4

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 the rate of exchange between two currencies, in this case the U.S. dollar and the Canadian dollar, calculated from the rates of exchange between each currency and a third currency, the Deutschemark.

Question 5

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 settlement in the future. Spot trade is exchanging currencies at the current market rate for immediate delivery, while futures trade involves a standardized contract to exchange currencies at a future date. Triangle trade is not a type of currency trade, but rather a historical trade pattern between Europe, Africa, and the Americas that involved the exchange of goods, including slaves.

Question 6

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

Accepted Answer

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

Question 7

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

Accepted Answer

To solve this problem, we need to use the given exchange rate to convert $2,500 to euros. 
We can start by looking at the given exchange rates and note that 1 euro is equal to 1.16 dollars.

To convert $2,500 to euros, we can multiply by the exchange rate:

$2,500 x (1 euro / 1.16 dollars) = €2,155.17

Therefore, the closest option to €2,155.17 is B) €2,357, which is the best choice.

Question 8

In foreign exchange markets the swap rate is:

Accepted Answer

The swap rate is the difference in foreign exchange rates on a roundtrip agreement to buy and sell a currency. This rate is important for traders who engage in carry trades and need to understand the cost of holding a currency position overnight.

Question 9

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 premium relative to the dollar because in the forward market the Euro is selling for a higher price ($1.12) than in the spot market ($1.10). This indicates that buyers in the forward market are willing to pay a premium for the Euro, which strengthens the Euro's value in relation to the dollar.

Question 10

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

Accepted Answer

This quote is a direct rate because it shows the price of one unit of German mark in US dollars.

Question 11

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 will...

Question 12

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

Accepted Answer

A direct rate is when the domestic currency is quoted in terms of a foreign currency. In this case, the German mark is quoted as 1.923 marks, indicating the price of the German mark in domestic currency (assuming the quote is given in a domestic newspaper or financial news outlet).

Question 13

The acronym LIBOR stands for:

Accepted Answer

LIBOR stands for London Interbank Offered Rate. It is the rate at which banks can borrow funds from other banks in the London interbank market.

Question 14

The cross rate is the:

Accepted Answer

The cross rate refers to the exchange rate between two currencies generally other than the US dollar. It is the rate at which one currency is exchanged for another currency that is not the official currency of the country where the exchange is taking place.

Question 15

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 16

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

Accepted Answer

A spot trade involves settling the foreign exchange transaction in two business days. The other options involve settling the transaction at a future date beyond two days.

Question 17

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.

Question 18

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 19

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

Accepted Answer

The answer of Triangular arbitrage would take place if the...

Question 20

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.

Quiz 32: International Corporate Finance