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Exchange Rates and Exchange Rate Systems Questions

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International Economics, 7e (Gerber)
Chapter 10 Exchange Rates and Exchange Rate Systems
10.1 Introduction: Fixed, Flexible, or In-Between?
1) There are no questions for this section.
Topic: Introduction: Fixed, Flexible, or In-Between?
10.2 Exchange Rates and Currency Trading
1) A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is
A) speculating.
B) demonstrating purchasing power parity.
C) engaging in interest rate arbitrage.
D) responding to fluctuations in the business cycle.
Answer: C
Topic: Exchange Rates and Currency Trading
Difficulty: Easy
Objective: LO 10.1 List the reasons for holding foreign exchange and the main institutions in
the foreign exchange market.
AACSB: Application of knowledge
2) Suppose the dollar is subject to a floating exchange rate system and that R is the number of
dollars per unit of foreign exchange. If R increases, then the dollar
A) depreciates.
B) appreciates.
C) is devalued.
D) is revalued.
Answer: A
Topic: Exchange Rates and Currency Trading
Difficulty: Moderate
Objective: LO 10.1 List the reasons for holding foreign exchange and the main institutions in
the foreign exchange market.
AACSB: Application of knowledge
3) When an individual or firm in the United States requests that a bank sell foreign exchange, the
bank will probably
A) call a foreign bank and arrange a purchase.
B) call the central bank and arrange a purchase.
C) call another bank customer with foreign exchange holdings.
D) call a foreign exchange broker and arrange a purchase.
Answer: D
Topic: Exchange Rates and Currency Trading
Difficulty: Easy
Objective: LO 10.1 List the reasons for holding foreign exchange and the main institutions in
the foreign exchange market.
AACSB: Application of knowledge

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Copyright © 2018 Pearson Education, Inc.
4) In order to protect against foreign exchange risk, firms can use
A) the spot market for foreign exchange.
B) interest rate arbitrage.
C) the forward market for foreign exchange.
D) the J-curve.
Answer: C
Topic: Exchange Rates and Currency Trading
Difficulty: Easy
Objective: LO 10.1 List the reasons for holding foreign exchange and the main institutions in
the foreign exchange market.
AACSB: Application of knowledge
5) Covered interest arbitrage involves both
A) the purchase of a foreign asset and a forward contract in the market for foreign exchange.
B) the purchase of a domestic asset and a spot contract in the market for foreign exchange.
C) the sale of a foreign asset and the purchase of a forward contract in the market for foreign
exchange.
D) the sale of domestic stocks and the purchase of foreign bonds.
Answer: A
Topic: Exchange Rates and Currency Trading
Difficulty: Moderate
Objective: LO 10.1 List the reasons for holding foreign exchange and the main institutions in
the foreign exchange market.
AACSB: Application of knowledge
6) Which of the following institutions is the most important participant in foreign currency
markets?
A) A retail customer
B) A commercial bank
C) A foreign exchange broker
D) A central bank
Answer: B
Topic: Exchange Rates and Currency Trading
Difficulty: Easy
Objective: LO 10.1 List the reasons for holding foreign exchange and the main institutions in
the foreign exchange market.
AACSB: Application of knowledge

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International Economics, 7e (Gerber) Chapter 10 Exchange Rates and Exchange Rate Systems 10.1 Introduction: Fixed, Flexible, or In-Between? 1) There are no questions for this section. Topic: Introduction: Fixed, Flexible, or In-Between? 10.2 Exchange Rates and Currency Trading 1) A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is A) speculating. B) demonstrating purchasing power parity. C) engaging in interest rate arbitrage. D) responding to fluctuations in the business cycle. Answer: C Topic: Exchange Rates and Currency Trading Difficulty: Easy Objective: LO 10.1 List the reasons for holding foreign exchange and the main institutions in the foreign exchange market. AACSB: Application of knowledge 2) Suppose the dollar is subject to a floating exchange rate system and that R is the number of dollars per unit of foreign exchange. If R increases, then the dollar A) depreciates. B) appreciates. C) is devalued. D) is revalued. Answer: A Topic: Exchange Rates and Currency Trading Difficulty: Moderate Objective: LO 10.1 List the reasons for holding foreign exchange and the main institutions in the foreign exchange market. AACSB: Application of knowledge 3) When an individual or firm in the United States requests that a bank sell foreign exchange, the bank will probably A) call a foreign bank and arrange a purchase. B) call the central bank and arrange a purchase. C) call another bank customer with foreign exchange holdings. D) call a f ...
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