In Germany, 1 USD is equal to 1.4567 EUR. In the US, 1 USD is equal to 1.1625 AUD. In the UK, 1 USD is equal to 1.6752 GBP. In France, 1 EUR is equal to 1.1752 USD.
A. The risk of loss due to a devaluation of the pound sterling can be mitigated by:
A. Selling sterling in the forward market for 60-day delivery
B. Buying sterling now and selling it at the end of 60 days
C. Selling the dollar equivalent in the forward market for 60-day delivery
D. Keeping the sterling in Britain after it is delivered to you
A. The immediate delivery of currencies
B. Currencies traded for future delivery
C. The merchandise trade account
D. Hedging of international currency risks
4. Suppose the exchange rate between the Japanese yen and the U.S. dollar is 100 yen per dollar. A Japanese stereo with a price of 60,000 yen will cost:
A. USD 60
B. USD 600
C. USD 6,000
D. None of the above
5. In the interbank market for foreign exchange, the term "bid rate" refers to the price that a bank is willing to pay for a unit of foreign currency.
A. Offer rate
B. Bid rate
C. Spread rate
D. Transaction rate
6. In the interbank market for foreign exchange, the term "spread" refers to the difference between the offer rate and the bid rate.
A. Cross rate
B. Option
C. Arbitrage
D. Spread
7. If yesterday 1 USD would buy 1,091 South Korean won, but today 1 USD will only buy 1,070 won, it means that the dollar has depreciated in value.
A. Dollar has appreciated in value.
B. Dollar has depreciated in value.
C. Demand for dollars in the foreign exchange market has increased relative to the supply of won.
D. Won price of dollars has gone up.
8. If an American has a commitment to pay a friend in Britain 1,000 pounds in 30 days, he could remove the risk of loss due to the appreciation of the pound by:
A. Buying dollars in the forward market for delivery in 30 days
B. Selling dollars in the forward market for delivery in 30 days
C. Buying the pounds in the forward market for delivery in 30 days
D. Selling the pounds in the forward market for delivery in 30 days
9. A saver has USD 10,000 saved and buys a USD 10,000 General Motors (GM) bond maturing in ten years, paying an interest rate of 9.5 percent per annum. This transaction is an example of indirect finance.