Chapter 15 Test Bank PDF

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Chapter 15 - Test BankMultiple Choice Questions The value of FX daily transactions in the global FX markets is estimated to be: A. USD 2000 billion. B. USD 3000 billion. C. USD 4000 billion. D. USD 5000 billion. Most foreign exchange transactions are conducted: A. by governments. B. by tourists. C. ...

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Chapter 15 - Test Bank

Multiple Choice Questions 1.

The value of FX daily transactions in the global FX markets is estimated to be: A. USD 2000 billion. B. USD 3000 billion. C. USD 4000 billion. D. USD 5000 billion.

2.

Most foreign exchange transactions are conducted: A. by governments. B. by tourists. C. in the FX over-the-counter markets. D. on the Australian Securities Exchange.

3.

The foreign exchange market is where: A. exports and imports are traded. B. exports and imports are interchanged for gold bullion. C. different currencies are bought and sold. D. companies organise their foreign long-term financing.

4.

The institutions that transact between the foreign exchange (FX) dealers in banks and act as principals in the FX market are called the: A. foreign-currency dealer houses. B. currency syndicates. C. foreign-exchange brokers. D. inter-bank currency clearinghouses.

5.

A large international organisation representing the central banks of the major developed countries is called: A. the OECD. B. the ECB. C. Bank for International Settlements. D. the World Trade Organization.

6.

Financial institutions active in the FX markets include: A. commercial banks. B. commodity traders. C. insurance companies. D. all of the given answers.

7.

Currently, the largest FX centre is in: A. New York. B. London. C. Hong Kong. D. Tokyo.

8.

All of the following are primary centres of foreign exchange trading except: A. London. B. New York. C. Munich. D. Tokyo.

9.

The estimates of FX trading occurring worldwide daily are: A. USD 100 billion to USD 500 billion. B. USD 500 billion to USD 1000 billion. C. USD 1500 billion to USD 2000 billion. D. USD 2000 billion to USD 4000 billion.

10. Which of the following about global FX markets is NOT correct? A. Trading in FX is conducted using telephones and computer–based technological systems. B. New York is the largest FX market. C. The Bank for International Settlements estimates turnover in excess of USD 4000 billion. D. A free float FX regime is one where the exchange rate moves according to the forces of supply and demand. 11. If the value of a currency is determined by market forces, this is regarded as a: A. partial floating regime. B. floating rate regime. C. managed floating regime. D. crawling peg regime.

12. If the value of a currency moves within a defined band, relative to another major currency this is a: A. partial floating regime. B. floating rate regime. C. managed floating regime. D. crawling peg regime. 13. An exchange rate regime that allows the currency to appreciate gradually over time but within a specified limited band set by government is a: A. partial floating regime. B. floating rate regime. C. managed floating regime. D. crawling peg regime. 14. The exchange rate where the value of the pegged currency is tied into the value of another currency or basket of currencies is a: A. crawling peg regime. B. floating rate regime. C. managed floating regime. D. linked exchange rate regime. 15. A managed float exchange rate regime is one which limits exchange rate movements within a band that is set by:

A. the major banks. B. the central bank. C. government legislation. D. the major FX traders. 16. A floating exchange rate regime is one: A. which limits exchange rate movements within a band that is set by the major banks. B. which limits exchange rate movements within a band that is set by the central bank. C. exchange rate for a currency is allowed to move as factors of supply and demand dictate. D. which limits exchange rate movements within a band that is set by the major FX traders. 17. Foreign exchange brokers: A. quote two-way prices at which they are willing to buy and sell at. B. in Australia require an authority from the central bank to operate. C. arbitrage price differences between the various FX markets. D. seek out the best exchange rates and deal mostly with FX dealers.

18. The foreign exchange participant who quotes prices at which they are prepared to buy and sell foreign currencies is a: A. foreign exchange broker. B. foreign exchange arbitrageur. C. foreign exchange dealer. D. foreign exchange adviser. 19. Foreign exchange market participants who seek out the best FX rates in the markets and match the buy and sell orders for a fee are called:

A. FX dealers. B. FX brokers. C. FX arbitrageurs. D. FX day traders. 20. The financial institutions that quote buy and sell prices and act as principals in the FX markets are called: A. FX brokers. B. FX dealers. C. FX arbitrageurs. D. FX day traders. 21. Foreign exchange dealers quote _________ at which they are prepared to deal in foreign currency. A. ask prices B. two-way prices C. bid prices D. margin prices 22. The dealer quotes of a buy and a sell price on an FX currency are called: A. arbitrage quotes. B. two-way prices. C. dealer spreads. D. term quotes. 23. Which of the following market participants tend to keep exchange rates the same in all the world markets? A. Forward markets B. Foreign exchange counter trades C. Futures markets D. Arbitrageurs

24. The FX party that conducts buy and sell transactions in tow or more markets simultaneously to take advantage of price differentials is called a/an: A. FX broker. B. FX arbitrageur. C. FX dealer. D. FX agent. 25. The central bank resources made up of foreign currencies, gold and international drawing rights are called: A. central bank capital. B. official reserve assets. C. central bank floats. D. official bank assets. 26. If the value of a currency is influenced by a central bank that intervenes from time to time in the foreign exchange market, this is regarded as a: A. partial float. B. clean float. C. dirty float. D. soft float. 27. If a FX dealer buys USD from a client and holds USD on its own account on the expectation of the USD rising in value in the near future, it is taking a:

A. a hold position in the USD. B. a long position in the USD. C. a short position in the USD. D. forward position in the USD. 28. If a FX speculator sells USD that the speculator currently does not hold the speculator has entered into a: A. a hold position in the USD. B. a long position in the USD. C. a short position in the USD. D. forward position in the USD. 29. The holding of foreign currency in the hope of a future sale is called a/an: A. arbitrage position. B. long position. C. short position. D. selling position.

30. An Australian company has received USD in payment for goods exported. At the time of receiving the USD, the exchange rate is quoted as AUD/USD 0.5650. Rather than immediately converting the USD into AUD, the company decides to ‘speculate' on a favourable movement in the exchange rate. In ‘today + n days' the exchange rate is AUD/USD 0.5750. Which of the following statements is correct? A. The company has taken a ‘long' position in the USD. B. The exporter company has made a loss on its FX position. C. The opportunity cost of interest forgone will affect the profitability of the FX position. D. All of the given answers are correct. 31. For a floating exchange rate, if a central bank does not intervene to influence the currency this is called a : A. partial float. B. clean float. C. dirty float. D. hard float. 32. Which of the following statements about the foreign exchange markets is incorrect? A. Much of the trading volume in the FX markets can be described as speculative transactions. B. Most foreign-exchange trading takes place in London. C. The FX markets are over-the-counter markets. D. Trading volume worldwide exceeds USD 4000 billion per day. 33. If the Australian central bank wished to cause the AUD to appreciate, it would _______ AUD and _______ foreign currency. A. buy; sell B. sell; sell C. sell; buy D. buy; buy 34. If the Australian central bank wished to cause the AUD to _______, it would _______ AUD and _______ foreign currency. A. depreciate; buy; sell B. appreciate; sell; buy C. depreciate; sell; buy D. appreciate; buy; buy

35. A/An _______ position is when an FX dealer enters into a forward contract to sell FX that is not held at that time. A. arbitrage B. long C. short D. dirty 36. If differences occur for FX rates between three or more currencies, FX dealers may perform: A. locational arbitrage. B. triangular arbitrage. C. cross arbitrage. D. speculative arbitrage. 37. Given the following rates, what arbitrage profit may be made with respect to the Australian dollar? USD 1 = AUD 1.70 USD 1 = SGD 1.70 AUD 1 = SGD 0.96 A. 0.1753 cents B. 0.5882 cents C. 1.7526 cents D. 5.882 cents 38. Foreign exchange dealers are regarded as forming a/an __________ market. A. regulated and organised B. over-the-counter C. auction D. exclusively broker 39. In the FX market, trading: A. stops after the London markets have closed. B. is restricted to the hours that the Australian banks are open. C. takes place at any hour of the night or day. D. stops after the London and New York markets have closed. 40. The physical location of FX dealers, generally within an institution's treasury room is called an FX:

A. broker's room. B. dealing room. C. auction room. D. quotation room.

41. Which of the following statements in relation to the operation of the FX market is incorrect? A. A corporation will generally need to sell foreign currency when it borrows funds from overseas capital markets for use in its own domestic operations. B. The main trading floor of the Australian FX market is located in Sydney, with subsidiary branches in other main cities. C. The Reserve Bank may conduct FX transactions in order to change the composition of its ‘official reserve assets'. D. ‘Dealers' in the Australian FX market use global electronic networks such as Bloomberg and Reuters. 42. The _______ is the price at which Australian dollars can be converted into another currency. A. direct exchange rate B. spot exchange rate C. exchange rate between AUD and a foreign currency D. forward exchange rate 43. For currency transactions, the spot exchange rate is the rate _______, and the forward exchange rate is the rate _______. A. on that day; today B. at some specified future date; today C. today; on that date D. on that date; at some specified future date 44. In the FX markets, the spot exchange rate can be defined as the: A. exchange rate that is settled within two business days. B. exchange rate that is settled within five working days. C. direct exchange rate. D. exchange rate between two currencies. 45. In the FX markets a forward transaction refers to the: A. spot rate. B. exchange rate that is determined at a specified date beyond the spot rate. C. exchange rate that is specified now, but with delivery and payment at some predetermined future date. D. upper limit of a currency bid-ask spread.

46. It is Tuesday, 27 March 201X, and an Australian importing company has to pay a US exporter USD 75 000 within the next six weeks. The company enters into a forward exchange contract with an FX dealer for ‘one month forward delivery' of USD. On what date will value settlement occur? A. 29 March 201X B. 27 April 201X C. 29 April 201X D. 30 April 201X 47. The first currency mentioned in an FX quote is called the:

A. basis currency. B. base currency. C. root currency. D. terms currency. 48. The second currency named in an FX quote is called the: A. basis currency. B. base currency. C. unit currency. D. terms currency. 49. A difference arises between the bid and offer rates of foreign currency because: A. the rates are between different dealer banks. B. of arbitrage opportunities between currencies. C. foreign exchange dealers need to earn income. D. it takes time to find buyers or sellers of foreign currency. 50. In general, multi-million transactions _______ the foreign exchange dealer's bid-offer spread. A. have no impact on B. increase C. widen D. narrow 51. In general, the foreign exchange dealer's bid-offer spread _______ with time to settlement. A. is not concerned B. increases C. decreases D. narrows

52. In general, the spread for retail transactions is: A. quite narrow, about 10 points. B. in the range of 20 to 30 points. C. in the range of 10 to 20 points. D. in excess of 50 points. 53. In general, the foreign exchange dealer's bid-offer spread _______ with increased volatility of FX. A. is not concerned B. decreases C. widens D. narrows 54. For a FX quote of AUD/GBP0.6250-53 has a spread of: A. 250 points. B. 50 points. C. 53 points. D. 3 points. 55. If a British car sells for £20 000 and the British pound is worth A$2.75, the Australian dollar price of the car is: A. $13 333. B. $30 000. C. $55 000. D. $133 333. 56. Calculate the current exchange rate EUR/JPY, given these two quotes: USD/EUR 0.9780-90 USD/JPY 119.20-30 A. EUR/JPY 116.57-79 B. EUR/JPY 116.67-70 C. EUR/JPY 121.86-88 D. EUR/JPY 121.76-98

57. Calculate the current exchange rate GBP/JPY, given these two quotes: USD/JPY 114.20-30 GBP/USD 1.6750-60 A. GBP/JPY 190.71-88 B. GBP/JPY 191.29-57 C. GBP/JPY 191.40-45 D. GBP/JPY 192.07-24 58. Calculate the current exchange rate AUD/GBP, given these two quotes: AUD/USD 0.5640-50 GBP/USD 1.5850-60 A. AUD/GBP 0.3558-62 B. AUD/GBP 0.3556-65 C. AUD/GBP 0.8945-55 D. AUD/GBP 0.8939-45 59. For spot transactions, the FX contract value date is: A. that day. B. one business day from the day of the transaction. C. two business days from the day of the transaction. D. three business days from the day of the transaction. 60. The convention in the FX markets is that the second-named currency in a FX quote that is used to express the value is: A. direct currency. B. indirect currency. C. terms currency. D. unit of the quotation. 61. The convention in the FX markets is the first-named currency in a FX quote is: A. direct currency. B. indirect currency. C. terms currency. D. unit of the quotation.

62. The convention in the FX markets is the currency on the left hand side of a quote is: A. direct currency. B. indirect currency. C. terms currency. D. base currency. 63. The convention in the FX markets is for the first currency mentioned in a FX quote is: A. direct currency. B. indirect currency. C. terms currency. D. unit of the quotation. 64. An Australian export company wishes to sell its euro receipts, EUR 500 000, through an FX dealer and receives the following quote: ‘Aussie mark spot is one-twenty-two fifty-five to sixty five'. What is the value of the export receipt? A. $407 664.09 B. $407 996.74 C. $612 750.00 D. $613 250.00 65. A company treasurer has received the following foreign exchange quote from an FX dealer: AUD/USD 0.5655-60. For the financial report to the board of directors, the treasurer is required to ensure the USD is the unit of the quotation. Which exchange rate quotation will the treasurer include in the report? A. AUD/USD 0.5655-60 B. USD/AUD 1.7668-83 C. AUD/USD 0.5660-55 D. USD/AUD 1.7683-68 66. The _______ quote is the number of units of foreign currency an Australian FX dealer is willing to give, in order to buy the unit of the quotation, that of AUD 1. A. direct B. indirect C. bid D. offer

67. The _______ quote is the number of units of foreign currency an Australian FX dealer is willing to take, in order to buy the unit of the quotation, that of AUD 1. A. direct B. indirect C. bid D. offer 68. In the FX markets a/an _____ quote is where the USD is the base currency. A. cross rate B. direct C. American D. indirect 69. In the FX markets a/an _____ quote is where the USD is the unit of the quotation. A. cross rate B. direct C. American D. indirect 70. In the FX markets a/an _____ quote is where the USD is the terms currency and the other currency is the unit of the quotation. A. cross rate B. direct C. American D. indirect 71. An indirect exchange rate can be converted to a direct exchange rate by: A. dividing the indirect rate by 100. B. multiplying the indirect rate by the spot rate. C. dividing the indirect rate by the number of US dollars required to purchase one unit of the terms' currency. D. transposing the indirect rate. 72. If it takes 1.25 euros to buy 1 US dollar, the direct quote for the exchange rate is: A. 0.25 B. 0.8 C. 1.00 D. 1.25

73. A student researching the AUD/USD exchange rate on a particular day is confused to find the following two quotations: i. AUD/USD 0.5825-30 ii. USD/AUD 1.7152-67 Which of the following statements is correct? A. Quote i is the convention adopted in Australia and is a direct quote B. Quote ii is the convention adopted in Australia and is a direct quote. C. Quote i is the convention adopted in Australia and is an indirect quote. D. Quote ii is the convention adopted in Australia and is an indirect quote. 74. For the Aussie/euro spot rate (AUD/EUR 1.8088-1.8098), the percentage spread is: A. 1 B. 5.5 C. 10 D. none of the given answers. 75. When a smaller amount of a foreign currency is required to buy the Australian dollar, the currency is said to have _______ with respect to the dollar. A. appreciated B. consolidated C. depreciated D. remained fixed 76. An Australian company is to export electronic equipment into Europe, in particular Germany and Sweden, and needs to consider the exchange rate implications of conducting business in euros and Swedish kroner. Spot rates quoted are: USD/EUR 0.9275-85 USD/SEK 8.4531-41 Calculate the EUR/SEK cross-rate. A. EUR/SEK 0.1097–0.1098 B. EUR/SEK 9.1139–9.1051 C. EUR/SEK 9.1051–9.1139 D. EUR/SEK 9.1040–9.1149 77. The difference between the spot rate and the forward rate quotation is the: A. exchange rate arbitrage. B. forward points. C. interest rate parity. D. indirect exchange rate.

78. The theory that the annual percentage differential in the forward market for a currency quoted in terms of another currency is equal to the approximate difference in the interest rates between two countries is known as: A. covered interest arbitrage. B. the Fisher equation. C. a forward rate agreement. D. interest rate parity. 79. The principle of interest rate parity asserts that the:

A. relative spot exchange rates determine the relativity between the forward exchange rates and spot rates. B. relativity between spot and forward exchange rates reflects the interest rate differentials between countries. C. relative forward exchange rates determine the relativity between the spot exchange rates and the forward interest rate. D. relative forward exchange rates determine the relativity between the forward exchange rates and forward interest rates. 80. If interest rate parity holds, the currency of the country with the relatively _______ interest rates will trade at a forward _______ to the country with the relatively high interest rate. A. low; discount B. low; premium C. low; loss D. none of the given choices 81. If interest rate parity holds, the currency of the country with the relatively _______ interest rates will trade at a forward _______ to the country with the relatively _______ interest rate. A. high; premium; low B. low; discount; high C. high; discount; low D. None of the given choices 82. An importer will be required to purchase USD in approximately six months to pay for a consignment of goods. The company is concerned that the AUD may depreciate before the due date and therefore decides to enter into a forward exchange contract to protect its position. The company receives the following quote: ‘the Aussie is fifty-eight forty-five to fifty-three, sixty-two to sixty six'. Calculate the forward exchange rate. A. AUD/USD 0.5783-87 B. AUD/USD 0.5907-19 C. AUD/USD 0.5911-15 D. AUD/USD 0.6465-13

83. If the spot rate is AUD/USD 0.5510-0.5515, and the six-month forward points are 48 to 53, the six-month outright forward rate would be: A. AUD/USD 0.5462-0.5462 B. AUD/USD 0.5563-0.5558 C. AUD/USD 0.5558-0.5563 D. AUD/USD 0.5558-0.5568 84. If the spot rate is AUD/USD 0.5526-0.5531 and the 90-day forward rate is AUD/USD 0.5578-0.5588, the AUD is trading at a/an:

A. expected gain. B. premium. C. reciprocal. D. discount. 85. If the forward exchange rate is price...