Question :
41.Steven converted $1,000 to ¥105,000 for a trip to Japan. : 1299372
41.Steven converted $1,000 to ¥105,000 for a trip to Japan. However, he spent only ¥50,000. During this period, the value of the dollar weakened against the yen. Considering a current exchange rate of $1=¥100, how many dollars did Steven spend on the trip?
A. $550
B. $523
C. $450
D. $600
E. $500
42.A French company wants to invest 20 million euros for three months. The company found that investing in a Thai money market account will give it a higher interest rate than domestic investments. Which of the following is true about this investment?
A. The investment is risk-free because money market investments are considered to be equivalent to bank deposits.
B. The investment is not risk-free because foreign currency movements in the intervening period can affect the profitability of the firm.
C. The investment is risk-free because such investments also lock foreign exchange rates for the duration of the investment.
D. The investment is not risk-free because money market instruments are considered to be the most speculative of all investments.
E. The investment is risk-free because the Thai money market is considered to be more stable and secure than other markets.
43.Which of the following refers to currency speculation?
A. The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates
B. The exchange rate at which a foreign exchange dealer will convert one currency into another that particular day
C. Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
D. The purchase of securities in one market for immediate resale in another to profit from a price discrepancy
E. The growth in a country’s money supply exceeding the growth in its output, leading to price inflation
44.Robben Inc. converts $1,000,000 into euros when the exchange rate is $1 = €0.75. After three months, the company converts this back into dollars when the exchange rate is $1 = €0.80. Which of the following is the outcome of this transaction?
A. A loss of $62,500
B. A loss of $66,667
C. A gain of $50,000
D. A gain of $62,500
E. A loss of $50,000
45.Which of the following refers to carry trade?
A. Providing insurance or hedging against the risks that arise from volatile changes in exchange rates
B. A transaction between two parties that involves exchanging currency and executing a deal at some specific date in the future
C. Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
D. The purchase of securities in one market for immediate resale in another to profit from a price discrepancy
E. Borrowing in one currency where interest rates are low and then using the proceeds to invest in another currency where interest rates are high
46.The interest rate on borrowings in Rhodia is 2 percent and the interest rate on bank deposits in Maritia is 7.5 percent. In this scenario, a carry trade would be to:
A. borrow money in Maritian currency, convert it into Rhodian currency, and deposit it in a Rhodian bank.
B. borrow money in Rhodian currency and invest in stocks with good growth potential in Rhodia.
C. borrow money in Rhodian currency, convert it into Maritian currency, and deposit it in a Maritian bank.
D. invest in bank deposits of Maritia and reinvest the earnings in Rhodia.
E. invest in bank deposits of Rhodia and reinvest the earnings in Maritia.
47.Carry trade, a kind of speculation, takes advantage of the:
A. temporary undervaluation of one currency vis-à-vis another.
B. disparity between spot exchange rates and forward exchange rates.
C. the collapse of the gold standard.
D. differences in interest rates between countries.
E. the rise of the fixed exchange rate system.
48.The speculative element of the carry trade is that its success is based upon a belief that:
A. there will be no adverse movement in exchange rates or interest rates.
B. liquidity is the key factor in determining interest rates.
C. increasing money supply will not drive inflation.
D. spot exchange rates are more favorable than forward exchange rates.
E. hedging insures a company against foreign exchange risks.
49.Which of the following caused a decline in the dollar-yen carry trade during 2008-09?
A. Increase in risk appetite making the carry trade less attractive
B. Decrease in interest rate differentials as the U.S. rates came down
C. Increase in interest rate differentials as Japanese interest rates came down
D. Decrease in interest rate differentials as the U.S. interest rates went up
E. Decrease in interest rate differentials as the Japanese rates went up
50.When a firm insures itself against foreign exchange risk, it is said to be engaging in _____.
A. currency speculation
B. carry trade
C. hedging
D. currency swap
E. arbitrage
