Question 1

If Canadian speculators believed the Swiss franc was going to appreciate against the U.S.dollar,they would:
A) Purchase Canadian dollars
B) Purchase U.S.dollars
C) Purchase Swiss francs
D) Sell Swiss francs

Accepted Answer

Canadian speculators would purchase Swiss francs if they believed that it was going to appreciate against the U.S. dollar. This is because by owning Swiss francs, they can benefit from the increase in its value in comparison to the dollar.

Question 2

Concerning the covering of exchange market risks--assuming that a depreciation of the domestic currency is anticipated,one can say that there is an incentive for:
A) Exporters to rush to cover their future needs
B) Importers to rush to cover their future needs
C) Both exporters and importers to rush to cover their future needs
D) Neither exporters nor importers to rush to cover their future needs

Accepted Answer

Importers would rush to cover their future needs because a depreciation of the domestic currency would make foreign goods more expensive in the future.

Question 3

Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days.You can remove the risk of loss due to a devaluation of the pound sterling by:
A) Selling sterling in the forward market for 60-day delivery
B) Buying sterling now and selling it at the end of 60 days
C) Selling the dollar equivalent in the forward market for 60-day delivery
D) Keeping the sterling in Britain after it is delivered to you

Accepted Answer

By selling sterling in the forward market for 60-day delivery, the exporter locks in the exchange rate and eliminates the risk of loss due to devaluation. This is the most common way to hedge foreign exchange risk. Buying and then selling sterling at a later date would expose the exporter to changes in the exchange rate, while selling the dollar equivalent would not hedge against the specific risk of pound sterling devaluation. Keeping the sterling in Britain would not mitigate the risk of devaluation either.

Question 4

Which of the following would not induce the U.S.demand curve for foreign exchange to shift backward to the left?
A) Worsening American tastes for goods produced overseas
B) Decreasing interest rates in the U.S.compared to those overseas
C) A fall in the level of U.S.income
D) A depreciation in the U.S.dollar against foreign currencies

Accepted Answer

A depreciation in the U.S. dollar against foreign currencies would make foreign goods more expensive, potentially reducing demand for foreign exchange, but it does not directly cause the demand curve to shift left. Instead, it affects the quantity demanded along the curve.

Question 5

An appreciation in the value of the U.S.dollar against the British pound would tend to:
A) Discourage the British from buying American goods
B) Discourage Americans from buying British goods
C) Increase the number of dollars that could be bought with a pound
D) Discourage U.S.tourists from traveling to Britain

Accepted Answer

An appreciation of the U.S. dollar means it becomes more expensive for the British to buy American goods, as they need more pounds to exchange for the same amount of dollars, thus discouraging them from purchasing American products.

Question 6

A depreciation of the dollar refers to:
A) A fall in the dollar price of foreign currency
B) An increase in the dollar price of foreign currency
C) A loss of foreign-exchange reserves for the U.S.
D) An intervention in the international money market

Accepted Answer

A depreciation of the dollar means that it takes more dollars to buy the same amount of foreign currency, indicating an increase in the dollar price of foreign currency.

Question 7

If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days,you could remove the risk of loss due to the appreciation of the pound by:
A) Buying dollars in the forward market for delivery in 30 days
B) Selling dollars in the forward market for delivery in 30 days
C) Buying the pounds in the forward market for delivery in 30 days
D) Selling the pounds in the forward market for delivery in 30 days

Accepted Answer

By buying pounds in the forward market for delivery in 30 days, you are locking in the exchange rate now, eliminating the risk of loss due to any appreciation of the pound during that time period. This ensures that you will be able to fulfill your commitment to pay your friend the agreed-upon amount of 1,000 pounds.

Question 8

Over time,a depreciation in the value of a nation's currency in the foreign exchange market will result in:
A) Exports rising and imports falling
B) Imports rising and exports falling
C) Both imports and exports rising
D) Both imports and exports falling

Accepted Answer

A depreciation in a nation's currency makes its goods cheaper for foreign buyers, leading to an increase in exports. Conversely, foreign goods become more expensive for domestic consumers, leading to a decrease in imports.

Question 9

A U.S.export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange risk by:
A) Buying today 1 million pounds in the forward market for delivery in six months
B) Buying 1 million pounds in the spot market for delivery in six months
C) Selling 1 million pounds in the spot market for delivery in six months
D) Selling today 1 million pounds in the forward market for delivery in six months

Accepted Answer

The answer of A U.S.export company scheduled to receive 1...

Question 10

The exchange rate is kept the same in all parts of the market by:
A) Forward cover
B) Hedging
C) Exchange speculation
D) Exchange arbitrage

Accepted Answer

Exchange arbitrage involves buying and selling currency in different markets to take advantage of differing prices, thus helping to keep the exchange rate consistent across markets.

Question 11

Suppose that real incomes increase more rapidly in the United States than in Mexico.In the United States,this situation would likely result in a (an):
A) Increase in the demand for pesos
B) Decrease in the demand for pesos
C) Increase in the supply of pesos
D) Decrease in the supply of pesos

Accepted Answer

As real incomes increase in the United States, Americans are likely to demand more goods and services, including those from Mexico, leading to an increase in the demand for pesos to facilitate these purchases.

Question 12

Which of the following tends to cause the U.S.dollar to appreciate in value?
A) An increase in U.S.prices above foreign prices
B) Rapid economic growth in foreign countries
C) A fall in U.S.interest rates below foreign levels
D) An increase in the level of U.S.income

Accepted Answer

Rapid economic growth in foreign countries can lead to increased demand for U.S. goods and services, thereby increasing demand for the U.S. dollar and causing it to appreciate.

Question 13

Suppose researchers discover that Swiss beer causes cancer when given in large amounts to British mice.This finding would likely result in a (an):
A) Increase in the demand for Swiss francs
B) Decrease in the demand for Swiss francs
C) Increase in the supply of Swiss francs
D) Decrease in the supply of Swiss francs

Accepted Answer

The discovery that Swiss beer causes cancer would likely result in a decrease in the demand for Swiss francs. This is because people may become hesitant to purchase Swiss beer, causing a decline in the country's beer industry and overall economic activity. As a result, there may be less demand for the Swiss currency.

Question 14

A major difference between the spot market and the forward market is that the spot market deals with:
A) The immediate delivery of currencies
B) The merchandise trade account
C) Currencies traded for future delivery
D) Hedging of international currency risks

Accepted Answer

The spot market deals with the immediate delivery of currencies, while the forward market deals with currencies traded for future delivery. Therefore, option A is the correct choice. Option B refers to the trade of goods and services, not currencies. Option C refers to the forward market, not the spot market. Option D is a general function of both the spot and forward markets, and does not differentiate between the two.

Question 15

Suppose the exchange rate between the Japanese yen and the U.S.dollar is 100 yen per dollar.A Japanese stereo with a price of 60,000 yen will cost:
A) $60
B) $600
C) $6000
D) None of the above

Accepted Answer

To convert yen to dollars, we need to divide the yen amount by the exchange rate. So, 60,000 yen divided by 100 yen/dollar equals $600. Therefore, the correct answer is B.

Question 16

When short-term interest rates become lower in Tokyo than in New York,interest arbitrage operations will most likely result in a(n):
A) Increase in the spot price of the yen
B) Increase in the forward price of the dollar
C) Sale of dollars in the forward market
D) Purchase of yen in the spot market

Accepted Answer

The answer of When short-term interest rates become lower in...

Question 17

An increase in the dollar price of other currencies tends to cause:
A) U.S.goods to be cheaper than foreign goods
B) U.S.goods to be more expensive than foreign goods
C) Foreign goods to be more expensive to residents of foreign nations
D) Foreign goods to be cheaper to residents of the United States

Accepted Answer

An increase in the dollar price of other currencies means that the dollar is becoming more expensive relative to other currencies. This makes U.S. goods cheaper to buy for people in other countries, and more expensive for people in the United States to buy.

Question 18

Concerning the foreign exchange market,one can best say that:
A) There is a spot market for virtually every currency in the world
B) The market is highly centralized like the stock exchange
C) Most foreign exchange payments are made with bank notes
D) The values of the forward and spot rates are always in agreement

Accepted Answer

The foreign exchange market has a spot market for almost every currency in the world, where currencies are exchanged for immediate delivery.

Answer: B
 The foreign exchange market is decentralized, with trading taking place electronically through a network of banks, brokers, and other financial institutions, rather than in a centralized trading floor like the stock exchange.

Answer: C
 Most foreign exchange payments are made through electronic transfers, rather than bank notes.

Answer: D
 The values of the forward and spot rates may not always be in agreement, as they reflect different market expectations and risks.

Question 19

Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:
A) Reduce the demand for dollars
B) Increase the demand for dollars
C) Reduce the supply of dollars
D) Increase the supply of dollars

Accepted Answer

When there is an increase in demand for American grain, it creates a greater need for the currencies used to purchase it, including the dollar. Therefore, the demand for dollars would increase.

Question 20

The supply of foreign currency may be:
A) Upward-sloping
B) Backward-sloping
C) Vertical
D) None of the above

Accepted Answer

The supply of foreign currency does not depend on its price, but on the willingness of foreign holders of the currency to exchange it for the domestic currency. Therefore, it is not upward-sloping, backward-sloping, or vertical.

Quiz 11: Foreign Exchange

If Canadian speculators believed the Swiss franc was going to appreciate against the U.S.dollar,they would:

Concerning the covering of exchange market risks--assuming that a depreciation of the domestic currency is anticipated,one can say that there is an incentive for:

Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days.You can remove the risk of loss due to a devaluation of the pound sterling by:

Which of the following would not induce the U.S.demand curve for foreign exchange to shift backward to the left?

An appreciation in the value of the U.S.dollar against the British pound would tend to:

A depreciation of the dollar refers to:

If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days,you could remove the risk of loss due to the appreciation of the pound by:

Over time,a depreciation in the value of a nation's currency in the foreign exchange market will result in:

A U.S.export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange risk by:

The exchange rate is kept the same in all parts of the market by:

Suppose that real incomes increase more rapidly in the United States than in Mexico.In the United States,this situation would likely result in a (an) :

Which of the following tends to cause the U.S.dollar to appreciate in value?

Suppose researchers discover that Swiss beer causes cancer when given in large amounts to British mice.This finding would likely result in a (an) :

A major difference between the spot market and the forward market is that the spot market deals with:

Suppose the exchange rate between the Japanese yen and the U.S.dollar is 100 yen per dollar.A Japanese stereo with a price of 60,000 yen will cost:

When short-term interest rates become lower in Tokyo than in New York,interest arbitrage operations will most likely result in a(n) :

An increase in the dollar price of other currencies tends to cause:

Concerning the foreign exchange market,one can best say that:

Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:

The supply of foreign currency may be: