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Finance Flashcards

Finance 320 Chapter 8

The nominal exchange rate isA.the rate at which a bond may be exchanged for currency.B.the difference between the interest rate in one country and the interest rate in another country.C.the price of one​ country’s currency in terms of​ another’s.D.the rate at which a stock may be exchanged for currency. C
If a British automobile sells for pound£​20,000 and the British pound is worth​ $1.50, then the dollar price of the automobile isA.​$12,500.B.​$20,000.C.​$1.60.D.​$30,000. D
A change in the dollar value of the British pound from​ $1.60 to​ $1.50 representsA.an increase in the pound price of British goods.B.an increase in the dollar price of British goods.C.an appreciation of the pound relative to the dollar.D.an appreciation of the dollar relative to the pound. D
If the Japanese yen appreciates against the U.S.​ dollar,A.U.S. consumers gain by an decrease in the dollar price of Japanese exports to the United States.B.Japanese businesses gain by a decrease in the dollar price of exports to the United States.C.Japanese consumers gain by a decrease in the yen price of U.S. exports to Japan.D.Japanese consumers lose by an increase in the yen price of U.S. exports to Japan. C
In what way is a stronger​ yen/weaker dollar a burden for Japanese​ exporters?A.The stronger yen is likely to increase Japanese​ inflation, resulting in lower profits.B.They received dollars when they sell goods but most of their costs of production are in yen.C.They receive yen when they sell goods but most of their costs of production are in dollars.D.The price of their exports will​ decline, resulting in lower profits. B
If Sony keeps the price of PlayStation 3 constant in terms of​ dollars, what is the impact on Sony of a stronger​ yen?A.lower profitB.higher profitC.a decline in exports to the United StatesD.an increase in imports from the United States A
When it takes more euros to purchase a​ dollar, the dollars is said to​ have:A. depreciatedB. it depends on whether one is considering cross rates or exchange ratesC. it depends on whether one is using direct or indirect quotationsD. appreciated D
In the foreign−exchange ​market, tradingA.may not take place after 5 P.M. London time.B.takes place at prices set by the U.S. government in consultation with the governments of other leading countries.C.takes place at any hour of the night or day.D.is restricted to the hours 10 A.M. to 3 P.M. New York time. C
In forward​ transactions,A.currencies may only be exchanged at rates set by governments well in advance.B.the exchange takes place at the same exchange rate as in the spot market.C.currencies are exchanged at a set date in the future.D.currency is bought and sold for delivery later that same day. C
If the forward exchange rate of the yen in terms of dollars is greater than the spot exchange​ rate,A.U.S. interest rates must be higher than Japanese interest rates.B.market participants must be expecting the dollar to depreciate against the yen.C.market participants must be expecting the dollar to appreciate against the yen.D.Japanese interest rates must be higher than U.S. interest rates. B
Which of the following is an advantage of hedging with options instead of forward​ contracts?A.Options prices tend to be lower than forward prices.B.If the price moves in the opposite direction to the one hedged​ against, the hedger can decline to exercise the option and limit the loss to what was paid for the option.C.Options allow investors to purchase a forward contract at a later date.D.If the price moves in the direction of the one hedged​ against, the hedger can decline to exercise the option and limit the loss to what was paid for the option. B
The largest financial market in the world is​ the:A.options marketB.bond marketC.stock marketD.foreign exchange market D
If the price level in the United States increases more slowly than the price level in​ Canada, we would expectA.U.S. productivity to have increased more slowly than Canadian productivity.B.the Canadian dollar to depreciate against the U.S. dollar.C.interest rates in the United States to be higher than interest rates in Canada.D.the U.S. dollar to depreciate against the Canadian dollar. B
The theory of purchasing power parity assumes thatA.inflation rates are roughly the same in most countries.B.movements in nominal exchange rates are the result of movements in real exchange rates.C.real exchange rates are volatile.D.movements in nominal exchange rates are the result of movements in relative price levels. D
Under the theory of purchasing power​ parity, an increase in the U.S. price level of​ 10% relative to the Japanese price level will result inA.an appreciation of the yen by an amount that depends upon what happens to the real exchange rate.B.a​ 10% appreciation of the dollar.C.a​ 10% appreciation of the yen.D.an appreciation of the dollar by an amount that depends upon what happens to the real exchange rate. C
The demand for U.S. dollars​ represents:A.the willingness of households and firms that own dollars to exchange them for foreign currency.B.the demand for foreign goods and financial assets by households and firms within the United States.C.the demand for U.S. goods and financial assets by households and firms outside the United States.D.the demand for U.S. goods and financial assets by households and firms within the United States. C
Suppose that you expect during the next year the dollar will appreciate against the pound from 0.5 pound to the dollar to 0.75 pound to the dollar. How much will you expect to make on an investment of​ $10,000 in British government securities that will mature in one year and pay interest of​ 8%?A.​28%B.​8%C.−​28%D.−​59.5% C
If the German interest rate is​ 4% and the U.S. interest rate is​ 5%, what is the expected change in the value of the dollar in terms of the​ euro?A.−​1%B. 9%C. -​9%D. ​1% A
The situation in which investors choose to put their funds in a safe asset during uncertain times is known asA.flight to quality.B.arbitrage.C.speculation.D.hedging. A
Which of the following will take place in the foreign exchange market if there is an increase in the demand for products made in the United​ States?A. The supply of dollars will decrease.B. The demand for dollars will increase.C. The demand for dollars will decrease.D. The dollar will decrease in value. B

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