TEST BANK 11 Forex - Question bank for Topic 11 FOREIGN EXCHANGE with answers. These questions are/were PDF

Preview

Summary

Chapter 15: Foreign Exchange: The Structure andOperation of the FX Market Most foreign exchange transactions are conducted: A. by governments B. by tourists C. in the over-the-counter market D. on the Australian Securities Exchange The foreign exchange market is where: A. exports and imports are tra...

Description

Chapter 15: Foreign Exchange: The Structure and Operation of the FX Market 1. Most foreign exchange transactions are conducted: A. by governments B. by tourists C. in the over-the-counter market D. on the Australian Securities Exchange 2. 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 3. 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

4. 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 5. Financial institutions active in the FX markets include: A. commercial banks B. commodity traders C. insurance companies D. All of the given answers. 6. Currently, the largest FX centre is in: A. New York B. Londo n C. Hong Kong D. Toky o 7. 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

8. 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 9. 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. Arbitrageu rs 10. 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 11. 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

12. If the value of a currency is determined by market forces, this is regarded as a: A. partial float B. clean float C. dirty float D. hard float 13. 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 14. 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 15. All of the following are primary centres of foreign exchange trading EXCEPT: A. Londo n B. New York C. Munic h D. Toky o

16. Which of the following statements about the foreign exchange markets is INCORRECT? A. Trading volume exceeds USD 100 billion a day in the US. B. Most foreign-exchange trading takes place in London. C. It is an over-the-counter market. D. Trading volume worldwide exceeds USD 1500 billion per day. 17. 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 18. 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 FX market is located in Sydney, with subsidiary branches in other main capital 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 are required to hold a foreign exchange dealers' authority from the Reserve Bank. 19. The _______ is the price at which Australian dollars can be converted into another currency, for example the euro. A. direct exchange rate B. spot exchange rate C. exchange rate between AUD and a foreign currency D. forward exchange rate

20. 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 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. Foreign exchange dealers are regarded as forming a/an __________ market. A. regulated and organised B. over-thecounter C. auctio n D. exclusively broker

24. Financial institutions that quote buy and sell prices and act as principals in the FX markets are called: A. FX arbitrageurs B. FX brokers C. FX dealers D. FX speculators 25. The first currency mentioned in an FX quote is called the: A. basis currency B. base currency C. root currency D. terms currency 26. The second currency named in an FX quote is called the: A. basis currency B. base currency C. unit currency D. terms currency 27. A difference arises between the bid and ask 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

28. In general, multi-million transactions _______ the foreign exchange dealer's bid-offer spread. A. have no impact on B. increas e C. wide n D. narro w 29. In general, the foreign exchange dealer's bid-offer spread _______ with time to settlement. A. is not concerned B. increase s C. decrease s D. narrow s 30. In general, the foreign exchange dealer's bid-offer spread _______ with increased volatility of FX. A. is not concerned B. decrease s C. widen s D. narrow s

31. A/An _______ position is when an FX dealer enters into a forward contract to sell FX that is not held at that time. A. arbitra ge B. lon g C. shor t D. dirt y 32. 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. 33. 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

34. 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 35. Calculate the current exchange rate EUR/JPY, given these two quotes: USD/EUR 0.9780-90 USD/JPY 119.20-30 A. EUR/JPY 116.5779 B. EUR/JPY 116.6770 C. EUR/JPY 121.8688 D. EUR/JPY 121.7698 36. Calculate the current exchange rate GBP/JPY, given these two quotes: USD/JPY 114.20-30 GBP/USD 1.6750-60 A. GBP/JPY 190.7188 B. GBP/JPY 191.2957 C. GBP/JPY 191.4045 D. GBP/JPY 192.0724

37. Calculate the current exchange rate AUD/GBP, given these two quotes: AUD/USD 0.5640-50 GBP/USD 1.5850-60 A. AUD/GBP 0.355862 B. AUD/GBP 0.355665 C. AUD/GBP 0.894555 D. AUD/GBP 0.893945 38. 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 39. 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 40. 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

41. It is Tuesday, 27 March 200X, 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 200X B. 27 April 200X C. 29 April 200X D. 30 April 200X 42. 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 43. 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

44. 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 45. 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 0.565560 B. USD/AUD 1.766883 C. AUD/USD 0.566055 D. USD/AUD 1.768368 46. The _______ quote is the number of units of foreign currency an FX dealer is willing to give, in order to buy the unit of the quotation, that of AUD 1. A. dire ct B. indire ct C. bi d D. as k

47. The _______ quote is the number of units of foreign currency an FX dealer is willing to take, in order to buy the unit of the quotation, that of AUD 1. A. dire ct B. indire ct C. bi d D. as k 48. 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 49. For the Aussie/euro spot rate (AUD/EUR 1.8088-1.8098), the percentage spread is: A. 1 B. 5. 5 C. 1 0 D. None of the given answers. 50. If it takes 1.25 euros to buy 1 US dollar, the direct quote for the exchange rate is: A. 0.2 5 B. 0. 8 C. 1.0 0 D. 1.2 5

51. 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. 52. 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. appreciat ed B. consolidat ed C. depreciat ed D. remained fixed 53. 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 krona. 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

54. 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 55. 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 56. 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

57. 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 answers. 58. 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 answers. 59. 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 fiftyeight forty-five to fifty-three, sixty-two to sixty six'. Calculate the forward exchange rate. A. AUD/USD 0.578387 B. AUD/USD 0.590719 C. AUD/USD 0.591115 D. AUD/USD 0.646513

60. 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 0.54620.5462 B. AUD/USD 0.55630.5558 C. AUD/USD 0.55580.5563 D. AUD/USD 0.55580.5568 61. 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. premiu m C. reciproc al D. discou nt 62. If the forward exchange rate is priced higher than the spot rate the currency is said to be trading at a: A. discou nt B. gai n C. premiu m D. los s 63. If the forward points are _______at a specific date, the base currency is at a _______. A. rising; forward discount B. falling; forward discount C. rising; forward loss D. falling; forward gain

64. Which of the following principles refers to the circumstance that interest rates in different countries provide equal returns, taking into account the spot and forward exchange rates between the two countries? A. Exchange rate parity B. Interest rate parity C. Law of one price D. Purchasing power parity 65. A bank has been asked to provide a three-month forward AUD/USD 'buy' quote for a corporate client. The following information is available to the FX dealer at the bank: Spot rate: AUD/USD 0.7654–0.7659 US interest rates: 7.73% per annum Australian interest rates: 8.64% per annum Estimate the three-month forward 'buy' rate. A. 0.763 7 B. 0.763 9 C. 0.764 2 D. 0.764 4

66. A bank has been asked to provide a three-month forward EUR/USD 'buy' quote for a corporate client. The following information is available to the FX dealer at the bank: Spot EUR/USD 3-month US interest rate 3-month euro interest rate

Bid

Offer

1.0770 3.75% p.a. 2.65% p.a.

1.0782 3.85% p.a. 2.75% p.a.

Calculate the bid and ask a three-month forward rate. A. EUR/USD 1.0796– 1.0781 B. EUR/USD 1.0797– 1.0782 C. EUR/USD 1.0738– 1.0755 D. EUR/USD 1.0743– 1.0750 67. Which of the following statements is correct? A. A currency with a higher interest rate will sell at a forward premium. B. A currency with a higher interest rate will sell at a forward discount. C. A currency with a higher interest rate will have a higher spot rate. D. A currency with a higher interest rate will have a lower spot rate. 68. All of the following are considered 'hard' or major currencies, EXCEPT the: A. US dollar B. eur o C. Mexican peso D. British pound

69. The financial institution responsible for monetary policy in the European Union is called the: A. Bundesba nk B. European Parliament C. Bank for International Settlements D. European Central Bank 70. The FX market is organised as an over-the-counter market in which deposits denominated in foreign currencies are bought and sold. True

False

71. The largest FX market is based in New York. True

False

72. The FX brokers quote two-way prices at which they are prepared both to buy and sell foreign currencies and act as principals in the FX markets. True

False

73. If an Australian importer has a contract for Japanese goods denominated in yen payable in three months' time and is concerned that the AUD may appreciate, the importer may enter into a forward contract to sell the yen for delivery in three months' time. True

False

74. A USD/YEN quote means the price of USD1 in terms of YEN. True

False

75. Given USD/EURO0.6450-0.6455 an FX dealer would buy USD1 from you and give you EURO0.6455. True

False

76. When a currency is quoted against the USD and the USD is the base currency, this is direct quoting. True

False

77. A rule for working out a bid-ask cross rate for direct and indirect FX quotations is to multiply the two bid rates and multiply the two ask rates. True

False

78. Given that AUD/USD (spot) is 0.6830-40 and the six-month forward rate is 0.67980.6813, the six-month forward points must have been falling. True

False

79. When an FX dealer calculates a forward exchange rate for NZD/JPY they must adjust both interest rates to allow for the different quotation rates between Japan and New Zealand. True

False

80. Discuss the current exchange rate regimes of the major currencies.

81. In relation to exchange rates, discuss a managed float regime, a crawling peg regime and a pegged exchange rate.

82. Discuss briefly why a central bank might enter the FX markets.

83. Distinguish between forward transactions and tom value transactions.

84. Discuss how the way a currency is quoted affects how cross rates are calculated.

Chapter 15: Foreign Exchange: The Structure and Operation of the FX Market Key 1.

Most foreign exchange transactions are conducted: A. by governments B. by tourists C. in the over-the-counter market D. on the Australian Securities Exchange Difficulty: Easy Viney f Chapter 15 #1 learning goal: EMPTY learning objective: EMPTY level: EMPTY lo: EMPTY question type: EMPTY source: EMPTY type: EMPTY

2.

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 Difficulty: Easy Viney f Chapter 15 #2 learning goal: EMPTY learning objective: EMPTY level: EMPTY lo: EMPTY question type: EMPTY source: EMPTY type: EMPTY

3.

The institutions that transact between the foreign exchange (FX) dealers in banks and act as principals in the FX market a...