Question 1

The term 'mission creep' describes the situation where an organisation:

Accepted Answer

Mission creep refers to the expansion of an organization's activities beyond its original mandate or purpose. This can occur gradually over time as an organization takes on new responsibilities or pursues new initiatives that were not originally part of its core mission. This can lead to inefficiencies, lack of focus, and a decrease in the organization's overall effectiveness.

Question 2

Rates for currency exchange quoted for 30,90 or 180 days into the future are referred to as ______________.

Accepted Answer

Rates for currency exchange quoted for a certain period into the future are called forward exchange rates. These rates are used to hedge against fluctuations in exchange rates and manage currency risk. The other options, foreign exchange quotes and generic exchange quotes, are not specific enough and do not refer to rates quoted for a certain period. United trade rates are not a commonly used term in currency exchange.

Question 3

If the Australian dollar is in short supply,and the British pound is in plentiful supply,the _________ exchange rate is likely to change.

Accepted Answer

The answer of If the Australian dollar is in short...

Question 4

Due to its central role in so many foreign exchange deals,the US dollar is regarded as ________ currency.

Accepted Answer

The term "vehicle currency" is commonly used to describe a currency that is widely used in international transactions and serves as a medium for exchange between countries. Therefore, A) "a vehicle currency" is the most appropriate choice. B) "a potent currency" could also be a possible answer, but it does not accurately capture the meaning of the sentence. C) "an important currency" is a vague description and does not fully capture the significance of the US dollar in foreign exchange. D) "a widespread currency" is not the most appropriate choice because it does not accurately convey the role or function of the US dollar in foreign exchange.

Question 5

____________urs when an investor places a speculative bet that the value of a financial asset will decline and then profits from that decline.

Accepted Answer

Short selling is a strategy used by investors to profit from a decline in the value of a financial asset. The investor borrows the asset from someone else, sells it on the market, and then buys it back at a lower price to return it to the lender, pocketing the difference as profit. This is a speculative bet and carries higher risk than traditional investing.

Question 6

____________an investment fund that not only buys financial assets (stocks,bonds,currencies),but also sells them short.

Accepted Answer

A hedge fund is an investment fund that can buy and hold financial assets for long-term gains, but can also sell short. This means they can make investment gains from assets decreasing in value, not just increasing in value. Merchant banks may offer similar investment services but not necessarily with short selling capabilities. Economic and reserve banks are typically governmental institutions that do not engage in this type of investment activity.

Question 7

The process of buying a currency low and selling it high is called:

Accepted Answer

The process of buying a currency low and selling it high is known as arbitrage. This involves taking advantage of differences in exchange rates between different markets, which can lead to a profit for the trader. Forward exchange refers to a contractual agreement to exchange currencies at a predetermined price in the future. Skimming and profiteering are not specific to currency trading and generally have negative connotations.

Question 8

In essence,PPP theory predicts that changes in relative prices will result in a change in:

Accepted Answer

PPP theory states that changes in relative prices between two countries will result in a change in their exchange rates. This means that the currency of the country whose prices have increased relative to the other will depreciate, whereas the currency of the country whose prices have decreased will appreciate. This is because the purchasing power of the currency with higher relative prices will decrease, and hence, its value will decrease. Conversely, the purchasing power of the currency with lower relative prices will increase, and hence, its value will increase.

Question 9

If the demand for dollars outstrips the supply of them,and if the supply of Japanese yen is greater than the demand for them,the dollar will:

Accepted Answer

When the demand for dollars exceeds the supply, the value of the dollar will increase, and when the supply of yen exceeds the demand, the value of yen will decrease. Therefore, the dollar will appreciate against the yen.

Question 10

If the law of one price were true for all goods and services,the _________ exchange rate could be found from any individual set of prices.

Accepted Answer

The purchasing power parity (PPP) is the theory that suggests that the exchange rate between two countries should equal the ratio of the two countries' price levels of a basket of goods and services. If the law of one price were true for all goods and services, then the PPP exchange rate could be found from any individual set of prices.

Question 11

The foreign exchange market:

Accepted Answer

The foreign exchange market is a global market and is not located in any one place. It operates 24 hours a day, 5 days a week, and involves the buying and selling of currencies from all over the world. While some major financial centers, like New York City, London, and Tokyo, have important roles in the market, there is no single physical location for the market as a whole. Therefore, option A is the best choice.

Question 12

A lead strategy is an attempt to collect foreign currency receivables ______hen a foreign currency is expected to depreciate and paying foreign currency payables ______hey are due when a currency is expected to appreciate.

Accepted Answer

A lead strategy involves collecting foreign currency receivables early, before the currency is expected to depreciate, and paying foreign currency payables before they are due, when the currency is expected to appreciate. This helps to minimize the impact of currency fluctuations on a company's financials.

Question 13

When the Australian dollar buys more euros on the spot market than the 30-day forward market,we say the dollar is selling at a ______.Conversely,when the dollar buys fewer euros on the spot market than the 30-day forward market,we say the dollar is selling at a ________.

Accepted Answer

When the Australian dollar buys more euros on the spot market than the 30-day forward market, it is selling at a discount. Conversely, when it buys fewer euros on the spot market than the 30-day forward market, it is selling at a premium.

Question 14

An interesting feature of the foreign exchange market is that:

Accepted Answer

The foreign exchange market operates 24 hours a day, 5 days a week, which means that it never sleeps. This is because the market spans across different time zones, and as one market closes, another one opens, ensuring continuous trading.

Question 15

With Tokyo and Singapore to the east and New York to the west,it is these locations that have made the central position of ________ today the critical link between the East Asian and New York markets.

Accepted Answer

The question mentions Tokyo and Singapore to the east and New York to the west, implying that the central position in question lies between these locations. London is situated between these locations and is known as a critical link between the East Asian and New York markets. Hence, the best choice is D) London.

Question 16

The ________ theory tells us that a country with a high inflation rate will see deprecation in its currency exchange rate.

Accepted Answer

Purchasing power parity theory states that in the long run, the exchange rate between two currencies should move towards the rate that equalizes the prices of an identical basket of goods and services in both countries. A country with a high inflation rate will tend to have higher prices for its goods, making them less attractive to foreign buyers, and reducing the demand for its currency. This, in turn, leads to a depreciation in the exchange rate.

Question 17

The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates is called a:

Accepted Answer

This is because the given scenario describes a currency swap, where two parties exchange currencies for a specific period of time and then reverse the transaction at a later date. A spot exchange involves buying or selling foreign currency for immediate delivery, a forward exchange involves a contract to buy or sell foreign currency at a pre-determined rate for a future delivery date, and a reverse exchange is not a commonly used financial term.

Question 18

The most important trading centres for the foreign exchange market are in:

Accepted Answer

London, New York, and Tokyo are widely recognized as the most important trading centers for the foreign exchange market due to their high trading volumes, large financial institutions, and geographical location. London accounts for approximately 43% of global forex trading, while New York and Tokyo account for 17% and 6% respectively. Other centers such as Hong Kong, Singapore, and Sydney also have significant forex trading volumes but are lesser than the three majors. So, option A is the correct choice.

Question 19

The _________ states that in competitive markets free of transportation costs and barriers to trade,identical products sold in different countries must sell for the same price,when their price is expressed in terms of the same currency.

Accepted Answer

The law of one price states that in a competitive market with free trade and no transportation costs, identical products sold in different countries should have the same price when the price is expressed in terms of the same currency. This principle suggests that exchange rates between currencies should adjust to reflect price differentials across countries. If the same product sells at different prices in two different countries, there are opportunities for arbitrage, or taking advantage of price differentials to make a profit. Therefore, the law of one price helps to explain the relationship between exchange rates and the prices of goods and services traded internationally.

Question 20

Three factors that have the most important impact on future exchange rate movements include the country's price inflation,its market philosophy,and its ______???__________.

Accepted Answer

Interest rates heavily influence the demand for a country's currency. Higher interest rates generally attract foreign investment and increase demand for the currency, leading to appreciation in its value, while lower interest rates may deter investment and lead to a decrease in demand and devaluation. Price inflation and market philosophy also impact exchange rates, but interest rates are considered the most important factor among the three options given.

Quiz 4: Foreign Exchange and the International Monetary System