Global Business Today Study Set 7

Business

Quiz 10 :

The Foreign Exchange Market

Quiz 10 :

The Foreign Exchange Market

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The foreign exchange market is the primary vehicle used to minimize monopolies within a marketplace.
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True False
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False

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The spot exchange rate is the rate at which the foreign exchange dealer will convert one currency into another on a particular day.
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True

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Carry trade occurs when borrowing is done in one currency where interest rates are low and using the proceeds to invest in another country where interest rates are high.
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True

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A common kind of currency swap is spot against forward.
True False
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Unlike the purchasing power parity theory, the international Fisher effect is a good predictor of short-run changes in spot exchange rates.
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Assume that the euro/dollar exchange rate is €1 = $1.20. If it costs $36 to buy a European product, the stated price of the product would be €36.
True False
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In economic terms, interest rate levels reflect future inflation rates.
True False
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In terms of exchange rate forecasting, the efficient market school argues that companies should spend additional money trying to forecast short-run exchange rate movements.
True False
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Investor psychology has an effect on short-run exchange rate movements.
True False
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Supply and demand of one currency relative to another helps determine exchange rates.
True False
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Inflation occurs when the money supply in a country increases faster than output increases.
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The foreign exchange market offers complete insurance against foreign exchange risk.
True False
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When a firm enters into a spot exchange contract, it is taking out insurance against adverse future exchange rate movements.
True False
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A fundamental approach to exchange rate forecasting would focus on relative money supply growth rates, inflation rates, and interest rates.
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An efficient market exists when countries enact tariff barriers to minimize imports.
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Although a foreign exchange transaction can involve any two currencies, most transactions involve U.S. dollars on one side.
True False
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For price discrimination to work, arbitrage opportunities must be unlimited.
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When companies wish to convert currencies, they typically do so through a bank.
True False
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Currency swaps are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk.
True False
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Spot exchange rates and the 30-day forward rates are the same.
True False
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