Question 1

If it takes $1.5515 to buy 1 pound and $0.6845 to buy 1 franc, it takes 2.27 francs to buy 1 pound.

Accepted Answer

To find how many francs it takes to buy 1 pound, we can set up a proportion:
$\frac{0.6845}{1	ext{ franc}}=\frac{x}{1.5515	ext{ dollars/pound}}$
Solving for $x$, we get $x=0.6845	imes \frac{1.5515}{1}=1.0612$ francs/pound. Therefore, it takes 1.0612 francs to buy 1 pound. Since 2.27 francs is more than 1.0612 francs, the statement is true.

Question 2

As the dollar's exchange value appreciates against the pound, U.S. residents tend to import more British goods and thus demand more pounds.

Accepted Answer

When the dollar appreciates against the pound, British goods become cheaper for U.S. residents, leading to an increase in imports and a higher demand for pounds to pay for those imports.

Question 3

If it takes 113.28 yen to buy $1, it takes $.009624 to buy 1 yen.

Accepted Answer

If it takes 113.28 yen to buy $1, then it takes $0.008816 to buy 1 yen (1/113.28). Therefore, the statement "it takes $.009624 to buy 1 yen" is false.

Question 4

The supply of francs is derived from the desire of the Swiss to purchase German goods, make investments in Germany, repay debts to German lenders, and extend transfer payments to German residents.

Accepted Answer

The statement accurately describes the supply of francs, which is influenced by various economic factors such as trade, investment, debt, and transfers between Switzerland and Germany.

Question 5

A foreign currency option is an agreement between a holder (corporation) and a writer (commercial bank) giving the holder the right to buy or sell a certain amount of foreign currency at any time through some specified date.

Accepted Answer

This is the correct definition of a foreign currency option.

Question 6

If the Swiss demand for dollars is inelastic, an appreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Accepted Answer

If the Swiss demand for dollars is inelastic, it means that they are less responsive to changes in the exchange rate. Therefore, an appreciation of the dollar may not necessarily lead to a greater quantity of francs being supplied to the foreign exchange market.

Question 7

The supply schedule of pesos has a negative-sloping region corresponding to the inelastic region on the Mexican demand schedule for foreign currency.

Accepted Answer

The inelastic region of the Mexican demand schedule for foreign currency corresponds to the upward-sloping region of the supply schedule of pesos. So, the statement in the question is false.

Question 8

A "call" option gives General Motors the right to sell pounds at a specified price, while a put option gives General Motors the right to buy pounds at a specified price.

Accepted Answer

The statement is incorrect. A call option gives General Motors the right to buy pounds at a specified price, while a put option gives General Motors the right to sell pounds at a specified price.

Question 9

If it takes $0.18544 to purchase 1 French franc, it takes 5.3926 francs to purchase $1.

Accepted Answer

To convert francs to dollars, we need to divide by the exchange rate of francs per dollar. That would be:
1 / 0.18544 = 5.3926
So it takes 5.3926 francs to purchase $1. Therefore, the statement is true.

Question 10

As the dollar depreciates against the peso, U.S. residents tend to import more Mexican goods and thus demand more pesos.

Accepted Answer

The answer of As the dollar depreciates against the peso,...

Question 11

"Futures" currency contracts are issued by commercial banks and are tailored in size to the needs of the exporter or importer, while "forward" currency contracts are issued by the International Monetary Market in standardized round lots.

Accepted Answer

"Futures" currency contracts are standardized contracts traded on organized exchanges, such as the Chicago Mercantile Exchange, while "forward" currency contracts are private agreements between two parties and not traded on organized exchanges.

Question 12

The supply schedule of yen has a positive-sloping region which corresponds to the inelastic region on the Japanese demand schedule for foreign currency.

Accepted Answer

The supply schedule of yen having a positive-sloping region would correspond to an elastic region, not inelastic, on the Japanese demand schedule for foreign currency, as it indicates an increase in supply with an increase in price.

Question 13

Given an upward-sloping supply schedule of pounds and a downward-sloping demand schedule for pounds, an increase in the demand schedule causes an appreciation of the dollar against the pound.

Accepted Answer

The question asks about the market for the Euro, not the pound. Additionally, it is unclear whether the statement is true for the Euro market as the information provided only describes the relationship between supply and demand for pounds.

Question 14

If the Swiss demand for dollars is elastic, an appreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Accepted Answer

If the Swiss demand for dollars is elastic, they will be more responsive to changes in the exchange rate. An appreciation of the dollar (which means a decrease in the value of the franc relative to the dollar) will make it more expensive for the Swiss to buy dollars. As a result, they will supply more francs to the foreign exchange market to obtain dollars, as they seek to maintain their level of demand for dollars. This will cause an increase in the supply of francs on the foreign exchange market.

Question 15

The demand for foreign exchange is derived from credit transactions on the balance of payments.

Accepted Answer

The answer of The demand for foreign exchange is derived...

Question 16

If the Swiss demand for dollars is inelastic, a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Accepted Answer

If the Swiss demand for dollars is inelastic, a depreciation of the dollar against the franc will lead to a relatively smaller increase in the quantity of francs supplied to the foreign exchange market to obtain dollars, as the Swiss demand for dollars is not very responsive to changes in the exchange rate.

Question 17

The U.S. demand for pounds is derived from U.S. exports to the United Kingdom, U.K. investments in the United States, and U.K. tourist expenditures in the United States.

Accepted Answer

The U.S. demand for pounds is primarily derived from U.S. imports from the United Kingdom, U.S. investments in the United Kingdom, and U.S. tourist expenditures in the United Kingdom, not the other way around.

Question 18

Movements along the demand schedule for pounds are caused by changes in the pound's exchange rate.

Accepted Answer

Movements along the demand schedule for pounds would be caused by changes in the quantity of pounds demanded due to changes in the pound's price (exchange rate), not changes in the exchange rate itself. Changes in the exchange rate would cause a shift in the demand or supply curve for pounds.

Question 19

If the Swiss demand for dollars is elastic, a depreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Accepted Answer

If the Swiss demand for dollars is elastic, then a depreciation of the dollar will make Swiss consumers feel that dollar-denominated goods and services are cheaper, thus making them want more dollars to purchase these goods and services. To obtain these additional dollars, they will supply more francs to the foreign exchange market. Therefore, the quantity of francs supplied will increase with an elastic demand for dollars.

Question 20

The demand schedule for Swiss francs is always downsloping while the supply schedule of francs is always upsloping.

Accepted Answer

The answer of The demand schedule for Swiss francs is...

Quiz 11: Foreign Exchange