Question 1

Currency exchange fluctuations are important for a business to understand because they can ____________________.

Accepted Answer

A)   affect profitability in an international transaction
B)   affect pricing in a country market
C)   affect the competitive advantage of a company
D)   increase costs for imported goods
E)   all of these answers are correctF) B) and C)
G) A) and C)

Question 2

The _____________ states that for any two countries,the spot exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries.

Accepted Answer

A)   Worldwide James Effect
B)   Universal Phillips Effect
C)   International Fisher Effect
D)   Global Miller Effect
E)   Law of One Price EffectF) None of the above
G) All of the above

Question 3

PPP theory predicts that changes in ______________ will result in a change in exchange rates.

Accepted Answer

A)   relative prices
B)   interest rates
C)   unemployment rates
D)   statutory prices
E)   wholesale pricesF) A) and B)
G) D) and E)

Question 4

In an _____________ market,forward exchange rates will not be the best possible predictors of future spot exchange rates.

Accepted Answer

A)   closed
B)   inefficient
C)   efficient
D)   reciprocal
E)   regulatedF) None of the above
G) C) and D)

Question 5

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

Accepted Answer

A)   model of fair pricing
B)   law of purchasing power equity
C)   principle of equitable pricing
D)   principle of consistent pricing
E)   law of one priceF) C) and D)
G) A) and B)

Question 6

The exchange rate between the British pound and the dollar is ≤	1 = $1.50 and a jacket that retails for $75 in New York sells for ≤	50 in London ($75/1.5 = ≤50) . This reflects what?

Accepted Answer

A)   model of fair pricing.
B)   law of one price.
C)   principle of equitable pricing.
D)   principle of consistent pricing.
E)   purchasing power equityF) B) and E)
G) B) and D)

Question 7

The PPP theory tells us that a country with a high inflation rate will see:

Accepted Answer

A)   a depreciation in its currency exchange rate
B)   an appreciation in its currency exchange rate
C)   no change in its currency exchange rate as a result of the inflation rate
D)   economic stability as a result of high inflation
E)   price rises to match neighbouring country pricesF) A) and B)
G) None of the above

Question 8

If the prices differed in London and New York and a dealer spent $1 million to purchase ×125 million,then sold that ×125 immediately for $1.046666 million,the trader would earn a profit of $46,666 on the transaction.This is accomplished through

Accepted Answer

A)   arbitrage.
B)   skimming.
C)   FDI.
D)   pre exchange agreements.
E)   buying low and selling high.F) A) and C)
G) C) and E)

Question 9

Canadian businesses will normally use the ________________ in international transactions.

Accepted Answer

A)   German mark
B)   Euro
C)   U.S. dollar
D)   Japanese yen
E)   British poundF) None of the above
G) B) and C)

Question 10

One function of the foreign exchange market is to provide some insurance against the risks that arise from changes in exchange rates,commonly referred to as:

Accepted Answer

A)   foreign market hazard
B)   global jeopardy
C)   foreign exchange risk
D)   commerce uncertainty
E)   trade payment riskF) C) and E)
G) C) and D)

Question 11

Although the _____________ offers some insurance against foreign exchange risk,it cannot provide complete insurance.

Accepted Answer

A)   foreign exchange market
B)   the Euro
C)   World Bank
D)   foreign currency exchange
E)   the CDCF) A) and B)
G) C) and D)

Question 12

The International Fisher Effect states that for any two countries,the _____________ exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries.

Accepted Answer

A)   reciprocal
B)   spot
C)   forward
D)   inward
E)   futureF) A) and B)
G) D) and E)

Question 13

Fundamental analysis uses price and volume data to determine past trends,which are expected to continue into the future.

Accepted Answer

A) True 
 B)False

Question 14

Short run exchange rate movements may be explained by ______________.

Accepted Answer

A)   the bandwagon effect
B)   investor expectations
C)   psychological factors
D)   nominal interest rates
E)   the bandwagon effect, investor expectations, and psychological factorsF) C) and E)
G) C) and D)

Question 15

An efficient market is one in which prices reflect all available public information.

Accepted Answer

A) True 
 B)False

Question 16

An importer enters into a 60 day forward exchange rate for converting dollars into yuan.The spot exchange rate is 5.28 yuan for 1 dollar.The forward exchange rate is 5.27 yuan for 1 dollar.How many yuan would the importer get for 50,000 dollars?

Accepted Answer

A)   264,000
B)   364,000
C)   364,500
D)   353,500
E)   263,500F) B) and C)
G) A) and B)

Question 17

_____________ occurs when an investor purchases securities in one market for immediate resale in another.

Accepted Answer

A)   Hedge fund
B)   Foreign direct investment
C)   Foreign exchange risk
D)   Arbitrage
E)   Financial gainF) A) and B)
G) C) and D)

Question 18

Tourists play a major role in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 19

A stronger Korean won means that Kia cars sold in Canada for dollars are recorded at a higher value when translated back into won in Korea.

Accepted Answer

A) True 
 B)False

Question 20

Calculate the forward exchange rate using the following information.Spot exchange rate is $1.45 for 1 Euro.The nominal interest rate in Canada is 6 percent and the nominal interest rate in Europe is 4%.

Accepted Answer

A)   1.44
B)   1.43
C)   1.45
D)   1.41
E)   1.42F) C) and D)
G) A) and C)

Exam 9: The Foreign Exchange Market

An efficient market is one in which prices reflect all available public information.

Correct AnswerverifiedShow Answer

_____________ occurs when an investor purchases securities in one market for immediate resale in another.

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The exchange rate between the British pound and the dollar is ≤ 1 = $1.50 and a jacket that retails for $75 in New York sells for ≤ 50 in London ($75/1.5 = ≤50) . This reflects what?

Correct AnswerverifiedShow Answer

One function of the foreign exchange market is to provide some insurance against the risks that arise from changes in exchange rates,commonly referred to as:

Correct AnswerverifiedShow Answer

The _____________ states that for any two countries,the spot exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The PPP theory tells us that a country with a high inflation rate will see:

Correct AnswerverifiedShow Answer

Calculate the forward exchange rate using the following information.Spot exchange rate is $1.45 for 1 Euro.The nominal interest rate in Canada is 6 percent and the nominal interest rate in Europe is 4%.

Correct AnswerverifiedShow Answer

Fundamental analysis uses price and volume data to determine past trends,which are expected to continue into the future.

Correct AnswerverifiedShow Answer

An importer enters into a 60 day forward exchange rate for converting dollars into yuan.The spot exchange rate is 5.28 yuan for 1 dollar.The forward exchange rate is 5.27 yuan for 1 dollar.How many yuan would the importer get for 50,000 dollars?

Correct AnswerverifiedShow Answer

Tourists play a major role in the foreign exchange market.

Correct AnswerverifiedShow Answer

The International Fisher Effect states that for any two countries,the _____________ exchange rate should change in an equal amount but in the opposite direction to the difference in the nominal interest rates between the two countries.

Correct AnswerverifiedShow Answer

Although the _____________ offers some insurance against foreign exchange risk,it cannot provide complete insurance.

Correct AnswerverifiedShow Answer

A stronger Korean won means that Kia cars sold in Canada for dollars are recorded at a higher value when translated back into won in Korea.

Correct AnswerverifiedShow Answer

Short run exchange rate movements may be explained by ______________.

Correct AnswerverifiedShow Answer

Currency exchange fluctuations are important for a business to understand because they can ____________________.

Correct AnswerverifiedShow Answer

In an _____________ market,forward exchange rates will not be the best possible predictors of future spot exchange rates.

Correct AnswerverifiedShow Answer

If the prices differed in London and New York and a dealer spent $1 million to purchase ×125 million,then sold that ×125 immediately for $1.046666 million,the trader would earn a profit of $46,666 on the transaction.This is accomplished through

Correct AnswerverifiedShow Answer

Canadian businesses will normally use the ________________ in international transactions.

Correct AnswerverifiedShow Answer

PPP theory predicts that changes in ______________ will result in a change in exchange rates.

Correct AnswerverifiedShow Answer

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