Test bank International Finance MCQ (word)Chap 5

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1、Fundamentals of Multinational Finance, 3e (Moffett) 13Chapter 5 The Foreign Exchange Market5.1 Multiple Choice and True/False Questions1) Which of the following is NOT true regarding the market for foreign exchange? A) The market provides the physical and institutional structure through which the mo

2、ney of one country is exchanged for another. B) The rate of exchange is determined in the market. C) Foreign exchange transactions are physically completed in the foreign exchange market. D) All of the above are true. Answer: D Topic: Introduction to the Foreign Exchange Market Skill: Recognition2)

3、A/An _ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency. A) Eurodollar transaction B) import/export exchange C) foreign exchange transaction D) interbank market transaction Answer: C Topic: Introduction to th

4、e Foreign Exchange Market Skill: Recognition3) While trading in foreign exchange takes place worldwide, the major currency trading centers are located in A) London, New York, and Tokyo. B) New York, Zurich, and Bahrain. C) Paris, Frankfurt, and London. D) Los Angeles, New York, and London. Answer: A

5、 Topic: Introduction to the Foreign Exchange Market Skill: Recognition4) Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is level throughout the 24-hour day. Answer: FALSE Topic: Introduction to the Foreign Exchange Market Skill: Recognition

6、5) Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market? A) The transfer of purchasing power between countries. B) Obtaining or providing credit for international trade transactions. C) Minimizing the risks of exchange rate changes. D) All

7、 of the above were identified as functions of the foreign exchange market. Answer: D Topic: Foreign Exchange Market Functions Skill: Recognition 6) The authors identify two tiers of foreign exchange markets: A) bank and nonbank foreign exchange. B) commercial and investment transactions. C) interban

8、k and client markets. D) client and retail market. Answer: C Topic: Foreign Exchange Market Tiers Skill: Recognition7) The foreign exchange market is NOT efficient because A) market participants do not compete with one another due to the fact that exchange takes place around the world and not in a s

9、ingle centralized location. B) dealers have ask prices that are higher than bid prices. C) central governments dominate the foreign exchange market and everybody knows that by definition, central governments are inefficient. D) none of the reasons listed are accurate because the foreign exchange mar

10、ket is efficient. Answer: D Topic: Foreign Exchange Market Efficiency Skill: Conceptual8) Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize. Answer: TRUE Topic: Foreign Exchange Market Dealers

11、 and Brokers Skill: Recognition9) Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers. Answer: FALSE Topic: Foreign Exchange Market Profitability Skill: Recognition10) It is characteristic of foreign

12、exchange dealers to A) bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale. B) act as market makers, willing to buy and sell the currencies in which they specialize. C) trade only with clients in the retail market and never operate in the who

13、lesale market for foreign exchange. D) All of the above are characteristics of foreign exchange dealers. Answer: B Topic: Foreign Exchange Market Dealers Skill: Recognition11) Which of the following may be participants in the foreign exchange markets? A) bank and nonbank foreign exchange dealers B)

14、central banks and treasuries C) speculators and arbitragers D) All of the above. Answer: D Topic: Foreign Exchange (FX) Market Participants Skill: Recognition 12) _ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution

15、of a commercial or investment transaction. A) Speculators and arbitragers B) Foreign exchange brokers C) Central banks D) Treasuries Answer: A Topic: Foreign Exchange (FX) Market Participants Skill: Recognition13) In the foreign exchange market, _ seek all of their profit from exchange rate changes

16、while _ seek to profit from simultaneous exchange rate differences in different markets. A) wholesalers; retailers B) central banks; treasuries C) speculators; arbitragers D) dealers; brokers Answer: C Topic: Foreign Exchange (FX) Market Participants Skill: Recognition14) Foreign exchange _ earn a p

17、rofit by a bid-ask spread on currencies they purchase and sell. Foreign exchange _, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase. A) central banks; treasuries B) dealers; brokers C) brokers; dealers

18、D) speculators; arbitragers Answer: B Topic: Foreign Exchange (FX) Market Participants Skill: Recognition15) The primary motive of foreign exchange activities by most central banks is profit. Answer: FALSE Topic: Foreign Exchange (FX) Market Participants Skill: Recognition16) Dealers sometimes use b

19、rokers in the foreign exchange market because the dealers desire A) speed. B) accuracy. C) to remain anonymous. D) all of the above. Answer: D Topic: Foreign Exchange (FX) Market Participants Skill: Recognition 17) Daily trading volume in the foreign exchange market was about _ per _ in 2007. A) $3,

20、200 billion; month B) $1,000 billion; month C) $3,200 billion; day D) $1,000 billion; day Answer: C Topic: FX Trading Volume Skill: Recognition18) Daily trading volume of foreign exchange had actually decreased in 2004 from the levels reported in 2001. Answer: FALSE Topic: FX Trading Volume Skill: R

21、ecognition19) _ are NOT one of the three categories reported for foreign exchange. A) Spot transactions B) Swap transactions C) Strip transactions D) Futures transactions Answer: C Topic: FX Trading Volume Skill: Recognition20) Foreign exchange swaps were larger in 1998 than in 2001. The Bank for In

22、ternational Settlements attributes this to A) the introduction of the euro. B) growing electronic brokering in the spot interbank market. C) consolidation in general. D) all of the above. Answer: D Topic: FX Trading Volume Skill: Recognition21) The greatest amount of foreign exchange trading takes p

23、lace in the following three cities: A) New York, London, and Tokyo. B) New York, Singapore, and Zurich. C) London, Frankfurt, and Paris. D) London, Tokyo, and Zurich. Answer: A Topic: Foreign Exchange Market Locations Skill: Recognition22) The four currencies that constitute about 80% of all foreign

24、 exchange trading are A) U.K pound, Chinese yuan, euro, and Japanese yen. B) U.S. dollar, euro, Chinese yuan, and U.K. pound. C) U.S. dollar, Japanese yen, euro, and U.K. pound. D) U.S. dollar, U.K. pound, yen, and Chinese yuan. Answer: C Topic: Foreign Exchange Market Currencies Skill: Recognition

25、23) A _ transaction in the foreign exchange market requires an almost immediate delivery of foreign exchange. A) spot B) forward C) futures D) none of the above Answer: A Topic: Foreign Exchange Market Transactions Skill: Recognition24) A _ transaction in the foreign exchange market requires deliver

26、y of foreign exchange at some future date. A) spot B) forward C) swap D) currency Answer: B Topic: Foreign Exchange Market Transactions Skill: Recognition25) A spot transaction in the interbank market for foreign exchange would typically involve a two-day delay in the actual delivery of the currenci

27、es, while such a transaction between a bank and its commercial customer would not necessarily involve a two-day wait. Answer: TRUE Topic: Foreign Exchange Market Spot Transactions Skill: Recognition26) A forward contract to deliver British pounds for U.S. dollars could be described either as _ or _.

28、 A) buying dollars forward; buying pounds forward B) selling pounds forward; selling dollars forward C) selling pounds forward; buying dollars forward D) selling dollars forward; buying pounds forward Answer: C Topic: Foreign Exchange Market Forward Transactions Skill: Recognition27) A common type o

29、f swap transaction in the foreign exchange market is the _ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market. A) forward against spot B) forspot C) repurchase agreement D) spot against forward Answer: D Topic: Foreign Exchange

30、 Market Swaps Skill: Recognition 28) Swap and forward transactions account for an insignificant portion of the foreign exchange market. Answer: FALSE Topic: Foreign Exchange Market Swaps Skill: Recognition29) The _ is a derivative forward contract that was created in the 1990s. It has the same chara

31、cteristics and documentation requirements as traditional forward contracts except that they are only settled in U.S. dollars and the foreign currency involved in the transaction is not delivered. A) nondeliverable forward B) dollar only forward C) virtual forward D) internet forward Answer: A Topic:

32、 Foreign Exchange Market Derivatives Skill: Recognition30) Which of the following is NOT true regarding nondeliverable forward (NDF) contracts? A) NDFs are used primarily for emerging market currencies. B) Pricing of NDFs reflects basic interest rate differentials plus an additional premium charged

33、for dollar settlement. C) NDFs can only be traded by central banks. D) All of the above are true. Answer: C Topic: Foreign Exchange Market NDFs Skill: Conceptual31) A foreign exchange _ is the price of one currency expressed in terms of another currency. A foreign exchange _ is a willingness to buy

34、or sell at the announced rate. A) quote; rate B) quote; quote C) rate; quote D) rate; rate Answer: C Topic: Foreign Exchange Market Rates and Quotes Skill: Recognition32) Most foreign exchange transactions are through the U.S. dollar. If the transaction is expressed as the foreign currency per dolla

35、r this known as _ whereas _ are expressed as dollars per foreign unit. A) European terms; indirect B) American terms; direct C) American terms; European terms D) European terms; American terms Answer: D Topic: Foreign Exchange Market Terms Skill: Recognition 33) The following is an example of an Ame

36、rican term foreign exchange quote: A) $20/. B) 0.85 euro/$. C) 100/euro. D) None of the above. Answer: A Topic: Foreign Exchange Market Terms Skill: Recognition34) The European and American terms for foreign currency exchange are square roots of one another. Answer: FALSE Topic: Foreign Exchange Mar

37、ket Terms Skill: Recognition35) With several exceptions, most interbank quotes are stated in European terms (meaning foreign currency unit per U.S. dollar). Answer: TRUE Topic: Foreign Exchange Market Terms Skill: Recognition36) American and British meanings differ for the word billion. Therefore, w

38、hen traders refer to an American billion, they call it a/an _. A) Kiwi B) Loony C) Uncle Sam D) Yard Answer: D Topic: Billion Skill: Recognition37) Major exceptions to using European terms in foreign exchange include A) trading yen and euros. B) pounds and euros. C) Mexican Pesos and euros. D) all o

39、f the above. Answer: B Topic: Foreign Exchange Terms Skill: Recognition38) From the viewpoint of a British investor, which of the following would be a direct quote in the foreign exchange market? A) SF2.40/ B) $1.50/ C) 0.55/euro D) $0.90/euro Answer: C Topic: Direct Quote Skill: Recognition 39) A/a

40、n _ quote in the United States would be foreign units per dollar, while a/an _ quote would be in dollars per foreign currency unit. A) direct; direct B) direct; indirect C) indirect; indirect D) indirect; direct Answer: D Topic: Direct and Indirect Quotes Skill: Recognition40) If the direct quote fo

41、r a U.S. investor for British pounds is $1.43/, then the indirect quote for the U.S. investor would be _ and the direct quote for the British investor would be _. A) 0.699/$; 0.699/$ B) $0.699/; 0.699/$ C) 1.43/; 0.699/$ D) 0.699/$; $1.43/ Answer: A Topic: Direct Quote Skill: Analytical41) _ make mo

42、ney on currency exchanges by the difference between the _ price, or the price they offer to pay, and the _ price, or the price at which they offer to sell the currency. A) Dealers; ask; bid B) Dealers; bid; ask C) Brokers; ask; bid D) Brokers; bid; ask Answer: B Topic: Dealers Skill: Recognition TAB

43、LE 6.1Use the table to answer following question(s). 42) Refer to Table 6.1. The current spot rate of dollars per pound as quoted in a newspaper is _ or _. A) 1.4484/$; $0.6904/ B) $1.4481/; 0.6906/$ C) $1.4484/; 0.6904/$ D) 1.4487/$; $0.6903/ Answer: C Topic: Spot Rate Calculation Skill: Analytical

44、43) Refer to Table 6.1. The one-month forward bid price for dollars as denominated in Japanese yen is _. A) -20 B) -18 C) 129.74/$ D) 129.62/$ Answer: D Topic: Forward Rate Skill: Analytical44) Refer to Table 6.1. The ask price for the two-year swap for a British pound is _. A) $1.4250/ B) $1.4257/

45、C) -$230 D) -$238 Answer: B Topic: Swap Rates Skill: Analytical45) Refer to Table 6.1. According to the information provided in the table, the 6-month yen is selling at a forward _ of approximately _ per annum. (Use the mid rates to make your calculations.) A) discount; 2.09% B) discount; 2.06% C) p

46、remium; 2.09% D) premium; 2.06% Answer: C Topic: Forward Premium Calculation Skill: Analytical 46) Refer to Table 6.1. Cross rates A) are often reported in the form of a matrix in the financial newspapers. B) can be used to check on opportunities for intermarket arbitrage. C) for the spot market in

47、the table are 188.10/ (using the mid rates). D) are all of the above. Answer: D Topic: Cross Rates Skill: Recognition47) Given the following exchange rates, which of the multiple-choice choices represents a potentially profitable intermarket arbitrage opportunity?129.87/$euro 1.1226/$euro 0.00864/ A

48、) 115.69/euro B) 114.96/euro C) $0.8908/euro D) $0.0077/ Answer: B Topic: Currency Arbitrage Skill: Analytical48) For arbitrage opportunities to be practical, A) participants must have instant access to quotes. B) participants must have instant access to executions. C) bank traders must be able to e

49、xecute the arbitrage trades without an initial sum of money relying on their banks credit standing. D) all of the above must be true. Answer: D Topic: Currency Arbitrage Skill: Conceptual49) The U.S. dollar suddenly changes in value against the euro moving from an exchange rate of $0.8909/euro to $0

50、.08709/euro. Thus, the dollar has _ by _. A) appreciated; 2.30% B) depreciated; 2.30% C) appreciated; 2.24% D) depreciated; 2.24% Answer: A Topic: Foreign Exchange Skill: Analytical50) When the cross rate for currencies offered by two banks differs from the exchange rate offered by a third bank, a t

51、riangular arbitrage opportunity exists. Answer: TRUE Topic: Triangular Arbitrage Skill: Recognition 51) Most transactions in the interbank foreign exchange trading are primarily conducted via telecommunication techniques and little is conducted face-to-face. Answer: TRUE Topic: Interbank Foreign Exc

52、hange Skill: Recognition52) Global daily foreign exchange turnover (combined swaps, spot, and forward transactions) has declined from roughly $1,500 billion in 2001, to $1,200 in 2004, to $1,000 in 2007. Answer: FALSE Topic: Daily Foreign Exchange Skill: Recognition53) Given the following pair wise

53、exchange rates, estimate the cross-rate of pounds per euro.$0.8410/ $1.2223/euro A) 1.000/euro B) 1.5062/euro C) 0.6639/euro D) euro 1.5062/ Answer: C Topic: Cross Rates Skill: Analytical54) Given the following quotations (where the dollar is the home currency), what is the annualized forward premiu

54、m (discount) on the U.S. dollar?Spot rate: $1.305/euro 6-month forward rate: $1.335/euro A) premium; 4.4944% B) premium; 4.5977% C) discount; 4.4944% D) discount; 4.5977% Answer: D Topic: Cross Rates Skill: Analytical55) The article in the text about an interns first day on the job as a currency tra

55、der relates how what he/she had learned in business school had very little to do with how trading decisions were made on the floor of the exchange. Answer: TRUE Topic: Foreign Exchange Skill: Recognition56) The Continuous Linked Settlement system (CLS) links with the Real-Time Gross Settlement (RTGS

56、) systems and is expected to eventually result in same-day settlement rather than the current two-day settlement required for foreign exchange spot market transactions. Answer: TRUE Topic: Foreign Exchange Skill: Recognition 57) Currency trading increased tremendously between 2004 and 2007 with daily trading volume jumping from $1.9 trillion to $3.2 trillion. Which of the following do experts think was a major driving force behind the increased daily volume? A) increased activity by specialized investment groups such as hed