1 The world’s largest foreign exchange trading center isa) New York.b) Tokyo.c) London.d) Hong Kong. C
2 The foreign exchange market closesa) Never.b) 4:00 p.m. EST (New York time).c) 4:00 p.m. GMT (London time).d) 4:00 p.m. (Tokyo time). A
3 Most foreign exchange transactions are fora) intervention by central banks.b) interbank trades between international banks or nonbank dealers.c) retail trade.d) purchase of hard currencies. B
4 Most interbank trades area) speculative or arbitrage transactions.b) simple order processing for the retail client.c) overnight loans from one bank to another.d) brokered by dealers. A
5 At the wholesale levela) most trading takes place OTC between individuals on the floor of the exchange.b) most trading takes place over the phone.c) most trading flows over Reuters and EBS platforms.d) most trading flows through specialized “broking” firms. C
6 Intervention in the foreign exchange market is the process ofa) 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. C
7 The standard size foreign exchange transactions are fora) $10 million U.S.b) $1 million U.S.c) €1 million. A
8 Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in euros, at a cost of €512,100. The U.S. importer will contact his U.S. bank (where of course he has an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank quotes as €1.0242/$1.00. The importer accepts this price, so his bank will ____________the importer’s account in the amount of ____________.a) Debit, $500,000b) Credit, €512,100c) Credit, $500,000d) Debit, €512,100 A
9 The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A’s correspondent account(s) with bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.a) Bank A’s dollar-denominated account at B will fall by $90,000.b) Bank B’s dollar-denominated account at A will rise by $90,000.c) Bank A’s pound-denominated account at B will rise by £45,000.d) Bank B’s pound-denominated account at A will fall by £45,000.e) All of the above are correct E
10 The current exchange rate is €1.00 = $1.50. Compute the correct balances in Bank A’s correspondent account(s) with bank B if a currency trader employed at Bank A buys €100,000 from a currency trader at bank B for $150,000 using its correspondent relationship with Bank B.a) Bank A’s dollar-denominated account at B will fall by $150,000.b) Bank B’s dollar-denominated account at A will fall by $150,000.c) Bank A’s pound-denominated account at B will fall by €100,000.d) Bank B’s pound-denominated account at A will rise by €100,000. A
11 The spot marketa) involves the almost-immediate purchase or sale of foreign exchange.b) involves the sale of futures, forwards, and options on foreign exchange.c) takes place only on the floor of a physical exchange.d) all of the above. A
12 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 = £1.00b) $1.60 = £1.00c) $1.00 = £0.625d) $1.72 = £1.00 B
13 Suppose that the current exchange rate is €0.80 = $1.00. The direct quote, from the U.S. perspective isa) €1.00 = $1.25.b) €0.80 = $1.00.c) £1.00 = $1.80.d) None of the above A
14 Suppose that the current exchange rate is €1.00 = $1.60. The indirect quote, from the U.S. perspective isa) €1.00 = $1.60.b) €0.6250 = $1.00.c) €1.60 = $1.00.d) None of the above B
15 Indirect exchange rate quotations from the U.S. perspective area) the price of one unit of the foreign currency in terms of the U.S. dollar.b) the price of one U.S. dollar in the foreign currency. B
16 The Bid pricea) is the price that the dealer has just paid for something, his historical cost of the most recent trade.b) is the price that a dealer stands ready to pay. c) refers only to auctions like eBay, not over the counter transactions with dealers.d) is the price that a dealer stands ready to sell at. B
17 Suppose the spot ask exchange rate, Sa($|£), is $1.90 = £1.00 and the spot bid exchange rate, Sb($|£), is $1.89 = £1.00. If you were to buy $10,000,000 worth of British pounds and then sell them five minutes later, how much of your $10,000,000 would be “eaten” by the bid-ask spread?a) $1,000,000b) $52,910.05c) $100,000d) $52,631.58 D
18 If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and ask prices area) €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. C
19 In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.9072-$1.9077. The “big figure”, assumed to be known to all traders is _____. a) 1.9077b) 1c) 1.90d) 77 C
20 In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.9072-$1.9077. The currency dealer would likely quote that as _____.a) 72-77b) 77-72c) 5 pointsd) None of the above A
21 In the Interbank market, the standard size of a trade among large banks in the major currencies isa) 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. B
22 A dealer in pounds who thinks that the exchange rate is about to increase in volatilitya) 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 above. A
23 The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the euro-yen cross rate?a) ¥125 = €1.00b) ¥1.00 = €125c) ¥1.00 = €0.80d) None of the above A
24 Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00. Calculate the euro-pound exchange rate.a) €1 = £1.60b) €1 = £0.625c) €2.50 = £1d) €1 = £2.50 A
25 The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$. The AUD/SF cross exchange rate is _____.a) 0.7813b) 2.0000c) 1.2800d) 0.3500 C
26 Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00. Calculate the euro-pound exchange rate.a) €1.3333 = £1.00b) £1.3333 = €1.00c) €3.00 = £1d) €1.25 = £1.00 A
27 Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00. Calculate the euro-pound exchange rate.a) €1.3333 = £1.00b) £1.3333 = €1.00c) €3.00 = £1d) €1.25 = £1.00 D
28 Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00. Calculate the euro-pound exchange rate.a) ¥133.33 = €1.00b) €1.00 = ¥180c) ¥80 = €1.00d) €1 = £2.50 A
29 Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90. Calculate the euro-pound exchange rate.a) €1.3103 = £1.00b) £1.3333 = €1.00c) €2.00 = £1d) €3 = £1 A
30 What is the BID cross-exchange rate for Swiss Francs priced in euro?Hint: Find the price that a currency dealer will pay in euro to buy Swiss francs.a) €0.5386/CHFb) €0.5389/CHFc) €0.5463/CHFd) €0.5466/CHF A
31 What is the ASK cross-exchange rate for Swiss Francs priced in euro?Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.a) €0.5386/CHFb) €0.5389/CHFc) €0.5463/CHFd) €0.5466/CHF D
32 Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120. a) ¥192/€1.00b) €1.92/¥100c) €1.25/¥1.00d) €1.00/¥1.92 A
33 Suppose a bank customer with €1,000,000 wishes to trade out of euro and into Japanese yen. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120. How many yen will the customer get?a) ¥192,000,000b) ¥5,208,333c) ¥75,000,000d) ¥5,208.33 A
34 Market microstructure refers toa) the basic mechanics of how a marketplace operates.b) the basics of how to make small (micro-sized) currency trades.c) how macroeconomic variables such as GDP and inflation are determined.d) none of the above A
35 A recent survey of U.S. foreign exchange traders measured traders perceptions about how fast news events that cause movements in exchange rates actually change the exchange rate. The survey respondents claim that the bulk of the adjustment to economic announcements regarding unemployment, trade deficits, inflation, GDP, and the Federal funds rate takes place withina) ten seconds.b) one minute.c) five minutes.d) one hour. B
36 The forward price a) may be higher than the spot price.b) may be the same as the spot price.c) may be less than the spot price.d) all of the above D
37 Relative to the spot price the forward price will be a) usually less than the spot price.b) usually more than the spot price.c) usually equal to the spot price.d) usually less than or more than the spot price more often than it is equal to the spot price. D
38 The forward marketa) 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 above B
39 If one has agreed to buy foreign exchange forwarda) you have a short position in the forward contract.b) you have a long position in the forward contract.c) until the exchange rate moves, you haven’t made money, so you’re neither short nor long.d) you have a long position in the spot market. B
40 The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a short position on €1,000. At maturity, the spot exchange rate is $1.60/€. How much have you made or lost?a) Lost $100b) Made €100c) Lost $50d) Made $150 A
41 The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.52/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? a) Take a long position in a forward contract on €1,000,000 at $1.50/€. b) Take a short position in a forward contract on €1,000,000 at $1.50/€. c) Buy euro today at the spot rate, sell them forward.d) Sell euro today at the spot rate, buy them forward. A
42 Consider a trader who takes a long position in a six-month forward contract on the euro. The forward rate is $1.75 = €1.00; the contract size is €62,500. At the maturity of the contract the spot exchange rate is $1.65 = €1.00. a) The trader has lost $625.b) The trader has lost $6,250.c) The trader has made $6,250.d) The trader has lost $66,287.88 B
43 The current spot exchange rate is $1.50/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?a) Sell €1,000,000 forward for $1.50/€. b) Buy €1,000,000 forward for $1.55/€. c) Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€.d) Buy €1,000,000 today at $1.50/€; wait three months, if your forecast is correct sell €1,000,000 at $1.62/€. B
44 When a currency trades at a premium in the forward marketa) the exchange rate is more than one dollar (e.g. €1.00 = $1.28).b) the exchange rate is less than one dollar.c) the forward rate is less than the spot rate.d) the forward rate is more than the spot rate. D
45 When a currency trades at a discount in the forward marketa) the forward rate is less than the spot rate.b) the forward rate is more than the spot rate.c) the forward exchange rate is less than one dollar (e.g. €1.00 = $0.928).d) the exchange rate is less than it was yesterday. A
46 Swap transactionsa) involve the simultaneous sale (or purchase) of spot foreign exchange against a forward purchase (or sale) of approximately an equal amount of the foreign currency.b) account for about half of Interbank FX trading.c) involve trades of one foreign currency for another without going through the U.S. dollar.d) all of the above A
47 An exchange-traded fund (ETF) is a) the same thing as a mutual fund.b) a portfolio of financial assets in which shares representing fractional ownership of the fund are sold and redeemed by the fund sponsor. c) a portfolio of financial assets in which shares representing fractional ownership of the fund trade on an organized exchange.d) none of the above. C
48 The largest and most active financial market in the world isa) the Fleet Street Exchange in London.b) the NYSE in New York.c) the FX market.d) none of the above. C

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