14.2 The Foreign Exchange Market
1) The largest trading of foreign exchange occurs in
A) New York.
B) London.
C) Tokyo.
D) Frankfurt.
E) Singapore.
2) Which of the following type of funds cater to wealthy individuals, are not bound by government regulations, and are actively traded in foreign exchange markets?
A) pension funds
B) mutual funds
C) hedge funds
D) exchange funds
3) The future date on which the currencies are actually exchanged is called what?
A) the value date
B) the spot exchange date
C) the two-day window
D) the commitment date
E) the forward exchange rate
4) In 2010, about
A) 20 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
B) 10 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
C) 30 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
D) 40 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
E) 85 percent of foreign exchange transactions involved exchanges of foreign currencies for U.S. dollars.
5) Which one of the following statements is the MOST accurate?
A) Spot exchange rates are always higher than forward exchange rates.
B) Spot exchange rates are always lower than forward exchange rates.
C) Spot exchange rates and forward exchanges rates are always equal.
D) Spot exchange rates and forward exchanges rates are equal when the value date and the date of the spot transaction are the same.
E) Spot exchange rates and forward exchange rates never move closely together.
6) Forward and spot exchange rates
A) are necessarily equal.
B) do not move closely together.
C) are always such that the forward exchange rate is higher.
D) move closely together and are equal on the value date.
E) are unrelated to the value date.
7) A foreign exchange swap
A) is a spot sale of a currency.
B) is a forward repurchase of the currency.
C) is a spot sale of a currency combined with a forward repurchase of the currency.
D) is a spot sale of a currency combined with a forward sale of the currency.
E) make up a negligible proportion of all foreign exchange trading.
8) Nondeliverable forward exchange markets in centers such as Hong Kong and Singapore help to circumvent which problem?
A) loss of goods shipped from Hong Kong and Singapore
B) inconvertible currencies cannot be traded in foreign markets
C) lag between the spot exchange date and the value date
D) high travel costs from Asia to “traditional” foreign exchange markets
E) unstable currencies that hold no purchasing power
9) The following is an example of Radio Shack hedging its foreign currency risk
A) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to buy yen.
B) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to sell yen.
C) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack buys yen at a spot-exchange 1 month from now.
D) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen at a spot-exchange 1 month from now.
E) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen in a forward-exchange deal.
10) Which of the following is NOT an example of a financial derivative?
A) forwards
B) bonds
C) swaps
D) futures
E) options
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