Exam QnA Foreign Exchange market PDF

Preview

Summary

Download Exam QnA Foreign Exchange market PDF

Description

1. Intervention in the foreign exchange market is the process of A) a central bank requiring the commercial banks of that country to trade at a set price level. B) commercial banks in different countries coordinating efforts in order to stabilize one or more currencies. C) a central bank buying or selling its currency in order to influence its value. D) the government of a country prohibiting transactions in one or more currencies. 2. Country Britain (Pound) £62,500 1 Month Forward 3 Months Forward 6 Months Forward 12 Months Forward

U.S. $ equiv. Tuesday Monday 1.6000 1.6100 1.6100 1.6300 1.6300 1.6600 1.6600 1.7200 1.7200 1.8000

Currency per U.S. $ Tuesday Monday 0.6250 0.6211 0.6211 0.6173 0.6173 0.6024 0.6024 0.5814 0.5814 0.5556

Using the table shown, what is the most current spot exchange rate shown for British pounds? Use a direct quote from a U.S. perspective. A) $1.61 = £1.00 B) $1.60 = £1.00 C) $1.00 = £0.625 D) $1.72 = £1.00 3. Suppose that the current exchange rate is €0.80 = $1.00. The direct quote, from the U.S. perspective is 1/0.80=1.25 A) €1.00 = $1.25. B) €0.80 = $1.00. C) £1.00 = $1.80. D) none of the options 4. Suppose that the current exchange rate is £1.00 = $2.00. The indirect quote, from the U.S. perspective is ½=0.50 A) £1.00 = $2.00. B) £1.00 = $0.50. C) £0.50 = $1.00. D) none of the options 5. Indirect exchange rate quotations from the U.S. perspective are A) the price of one unit of the foreign currency in terms of the U.S. dollar. B) the price of one U.S. dollar in the foreign currency.

6. If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and ask prices are 1.51-1.50/1.50? A) €0.6667 and €0.6623. B) $1.51 and $1.50. C) €0.6623 and €0.6667. D) cannot be determined with the information given. 7. In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.2519-$1.2523. The currency dealer would likely quote that as ________.

A) 19-23 B) 23-19 C) 4 points D) none of the options 8. A dealer in British pounds who thinks that the pound is about to depreciate A) may want to widen his bid-ask spread by raising his ask price and lowering his bid. B) may want to lower both his bid price and his ask price. C) may want to lower his ask price while raising his bid. D) none of the options 9. A dealer in pounds who thinks that the exchange rate is about to increase in volatility A) may want to widen his bid-ask spread. B) may want to decrease his bid-ask spread. C) may want to lower his ask price. D) none of the options 10. Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00. Calculate the europound cross-rate. €/£=($/€) / ($/£)= 1.25/2=0.625?? A) £1 = €1.60 B) £1 = €0.625 C) £2.50 = €1 D) £1 = €2.50 11. Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00. Calculate the euroyen exchange rate. €/¥=($/€) / ($/¥) = 1.50 / 0.0083 = 180 A) ¥133.33 = €1.00 B) €1.00 = ¥180 C) ¥80 = €1.00 D) €1 = £2.50 12. The forward market A) involves contracting today for the future purchase of sale of foreign exchange at the spot rate that will prevail at the maturity of the contract. B) involves contracting today for the future purchase of sale of foreign exchange at a price agreed upon today. C) involves contracting today for the right but not obligation to the future purchase of sale of foreign exchange at a price agreed upon today. D) none of the options 13. In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.2519-$1.2523. The "big figure," assumed to be known to all traders is ________. A) 1.2523 B) 1 C) 1.25 D) 23 14. In the Interbank market, the standard size of a trade among large banks in the major currencies is A) for the U.S.-dollar equivalent of $10,000,000,000. B) for the U.S.-dollar equivalent of $10,000,000. C) for the U.S.-dollar equivalent of $100,000. D) for the U.S.-dollar equivalent of $1,000. 15. ) Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90. Calculate the europound exchange rate. €/£ = ($/£) / ($/€) = 1.90 / 1.45 = 1.3103

A) €1.3103 = £1.00 B) £1.3333 = €1.00 C) €2.00 = £1 D) €3 = £1...