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Exam 9: The Foreign Exchange Market

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Question 21

Multiple Choice

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One function of the foreign exchange market is to provide some insurance against the risks that arise from changes in exchange rates,commonly referred to as:

A) foreign market hazard.
B) global jeopardy.
C) foreign exchange risk.
D) commerce uncertainty.

E) All of the above
F) A) and D)

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Question 22

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Technical analysis draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements.

A) True
B) False

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Question 23

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To minimize the risk of an unanticipated change in exchange rates,a company can protect itself by entering into a forward exchange contract.

The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates is referred to as a:

There are no impediments to the free flow of goods and services in an efficient market.

Explain the difference between fundamental analysis and technical analysis.

When two parties agree to exchange currency and execute the deal at some specific time in the future,a forward exchange occurs.

The rate at which one currency is converted into another is known as the fluctuation rate.

According to the law of one price,if the exchange rate between the British pound and the dollar is $\le$ 1 = $1.50,a jacket that retails for $75 in New York should sell for _____ in London.

When the growth in a country's money supply is faster than output increases,inflation is fueled.

Where is the foreign exchange market located? What is the nature of the market? Is the market growing or shrinking on a global basis?

The foreign exchange market is open for only 12 hours in a day.

If lots of people want euros and euros are in short supply,and a few people want Japanese yen and yen are in plentiful supply,the euro is likely to _____ against the yen.

When a tourist goes to a bank in a foreign country to convert money into the local currency,the exchange rate used is the spot rate.

The foreign exchange market serves two main functions.These are:

When traders move as a herd in the same direction at the same time such as what occurred when George Soros betted against the British pound in 1992,a(n) _____ occurs.

A currency is said to be freely convertible when:

_____ states that for any two countries,the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

The _____ suggests that given relatively efficient markets,the price of a "basket of goods" should be roughly equivalent in each country.

According to the PPP,a country with a high inflation rate will see depreciation in its currency exchange rate.