Practice Test

Q1) Hedging refers to ________ Show Answer

Q2) Under the flexible exchange rate system exchange rate is determined by _______ Show Answer

Q3) The functions of foreign exchange market include _________ Show Answer

Q4) ________ helps to equalize the exchange rate in all parts of the foreign exchange market. Show Answer

Q5) The forward market in foreign exchange is _______ market Show Answer

Q6) Speculation in foreign exchange market refers to ______________. Show Answer

Q7) There is only a single exchange rate in the foreign exchange market Show Answer

Q8) The Primary dealer quote two way price to buy and sell Show Answer

Q9) Brokers possess more information and better knowledge of market Show Answer

Q10) India has been the Member of IMF from its inception in 1949 Show Answer

Q11) India attracts a small amount of FDI Show Answer

Q12) Under Fixed Exchange Rate frequent changes are needed Show Answer

Q13) Overvaluation leads to inflationary pressure Show Answer

Q14) The most widely traded currency in the foreign exchange market is the Show Answer

Q15) The supply of foreign currency tends to be: Show Answer

Q16) Suppose that a Swiss television set that costs 400 francs in Switzerland costs $200 in the United States. The exchange rate between the franc and the dollar is: Show Answer

Q17) Under a system of floating exchange rates, the pound would depreciate in value if there occurs: Show Answer

Q18) The largest volume of foreign exchange trading takes place in Show Answer

Q19) Given the foreign currency market for the Swiss franc, the supply of francs slopes upward, because as the dollar price of the franc rises: Show Answer

Q20) Suppose there occurs an increase in the Canadian demand for Japanese computers. This results in a (an): Show Answer

Q21) The exchange rate is kept the same across geographically-separate markets by Show Answer

Q22) The reduction or covering of foreign exchange risk is called Show Answer

Q23) An important feature of a ________ is that the holder has the right, but not the obligation, to buy or sell currency. Show Answer

Q24) The least common type of transaction in the foreign exchange is a Show Answer

Q25) The difference between bid (buying) rates and ask (selling) rates is called the Show Answer

Q26) The essential feature of a ________ is that it immediately fixed the rate at which a specified amount of one currency is to be delivered in exchange for a specific amount of another at a future date. Show Answer

Q27) If Sweden's currency depreciates relative to Norway's currency Show Answer

Q28) A difference between forward and futures contracts is that Show Answer

Q29) Speculators in foreign exchange markets do all of the following except Show Answer

Q30) The relationship between the exchange rate and the prices of tradable goods is known as the: Show Answer

Q31) If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals: Show Answer

Q32) If a Big Mac hamburger sells for the same dollar value in New York as in London then Show Answer

Q33) If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing power parity the exchange rate should be: Show Answer

Q34) When the price of foreign currency (the exchange rate) is above the equilibrium level: Show Answer

Q35) Suppose Canada and Switzerland were the only two countries in the world. There exists an excess supply of Swiss francs on the foreign exchange market. This suggests that: Show Answer

Q36) If Japan runs current-account deficit and exchange rates are floating: Show Answer

Q37) The exchange value of the U.S. dollar is primarily determined by: Show Answer

Q38) Due to Japan's high saving rate, suppose that the Japanese invest abroad. This investment may result in a/an _________ of the Japanese yen and therefore a ________ for Japan. Show Answer

Q39) Suppose that the purchasing-power-parity estimate of the dollar/euro exchange rate is $1.30 per euro, and the current spot rate is $1.38 per euro. Comparing these two exchange rates, from a long-run viewpoint you would Show Answer

Q40) Assume that a "Big Mac" hamburger costs $3 in the United States and 2 pesos in Mexico. The implied purchasing-power-parity exchange rate between the peso and the dollar is Show Answer

Q41) The purchasing-power-parity theory has limitations in forecasting exchange rate fluctuations for all of the following reasons except Show Answer

Q42) If export contracts are written in terms of foreign currency and import contracts are denominated in domestic currency, a depreciation of the dollar during the currency contract period Show Answer

Q43) The notion that, following a currency depreciation, the balance of trade falls for a while before increasing is called a ________ effect Show Answer

Q44) Suppose that the United Kingdom devalues the pound. If both exports and imports are written in terms of pounds, then the United Kingdom balance of trade ___________ during a currency contract period. Show Answer

Q45) The exchange rate system that best characterizes the present international monetary arrangement used by industrialized countries is: Show Answer

Q46) Which exchange rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions? Show Answer

Q47) Which exchange rate mechanism calls for frequent redefining of the par value by small amounts to remove a payments disequilibrium? Show Answer

Q48) Under managed floating exchange rates, if the rate of inflation in the United States is less than the rate of inflation of its trading partners, the dollar will likely: Show Answer

Q49) Small nations whose trade and financial relationships are mainly with a single partner tend to utilize: Show Answer

Q50) Small nations with more than one major trading partner tend to peg the value of their currencies to: Show Answer

Q51) The exchange rate is Show Answer

Q52) Exchange rates are determined in Show Answer

Q53) Although market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of Show Answer

Q54) An agreement to exchange dollar bank deposits for euro bank deposits in one month is a Show Answer

Q55) Today 1 euro can be purchased for $1.10. This is the Show Answer

Q56) When the value of the British pound changes from $1.25 to $1.50, then Show Answer

Q57) When the value of the British pound changes from $1.50 to $1.25, then Show Answer

Q58) When the value of the dollar changes from 0.5 pounds to 0.75 pounds, then Show Answer

Q59) When the value of the dollar changes from 0.75 pounds to 0.5 pounds, then Show Answer

Q60) At the beginning of 1980, the French franc was valued at 25 cents and in early 1988 it was valued at 17.5 cents. Thus, from 1980 to 1988, the dollar ______ and the franc ______. Show Answer

Q61) If the exchange rate between the dollar and the euro changes from 1.0 to 1.1 euros per dollar, the Show Answer

Q62) If the exchange rate between the dollar and the euro changes from 1.1 to 1.0 euros per dollar, the Show Answer

Q63) If the exchange rate between the dollar and the euro changes from 90 to 95 cents per euro, the Show Answer

Q64) If the exchange rate between the dollar and the euro changes from 99 to 97 cents per euro, the Show Answer

Q65) If the dollar price of a euro increases from $0.90 to $1.00, the euro Show Answer

Q66) If the Swiss franc price of a dollar increases from 1.50 Swiss francs to 1.6 Swiss francs per dollar, the dollar Show Answer

Q67) When the exchange rate for the German mark changes from $0.50 to $0.30, then, holding everything else constant, Show Answer

Q68) If the dollar appreciates relative to the British pound, Show Answer

Q69) If the dollar depreciates relative to the British pound, Show Answer

Q70) If the dollar depreciates relative to the British pound Show Answer

Q71) The _____ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries Show Answer

Q72) The theory of PPP suggests that if one country’s price level rises relative to another’s, its currency should Show Answer

Q73) The theory of PPP suggests that if one country’s price level falls relative to another’s, its currency should Show Answer

Q74) The theory of PPP suggests that if one country’s price level rises relative to another’s, its currency should Show Answer

Q75) The theory of PPP suggests that if one country’s price level falls relative to another’s, its currency should Show Answer

Q76) The theory of purchasing power parity cannot fully explain exchange rate movements because Show Answer

Q77) The theory of purchasing power parity cannot fully explain exchange rate movements because Show Answer

Q78) The purchasing power parity may not fully explain exchange rate movements because Show Answer

Q79) The PPP conclusion that exchange rates are determined solely by changes in relative price levels Show Answer

Q80) The PPP conclusion that exchange rates are determined solely by changes in relative price levels Show Answer

Q81) The PPP conclusion that exchange rates are determined solely by changes in relative price levels Show Answer

Q82) The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in Show Answer

Q83) The theory of purchasing power parity states that exchange rates between any two currencies will adjust to reflect changes in Show Answer

Q84) The theory of purchasing power parity states that in the long run Show Answer

Q85) Increased demand for a country’s ______ causes its currency to appreciate in the long run, while increased demand for ______ causes its currency to depreciate. Show Answer

Q86) Increased demand for a country’s exports causes its currency to ______ in the long run, while increased demand for imports causes its currency to ______. Show Answer

Q87) A higher domestic money supply causes the domestic currency to Show Answer

Q88) A higher domestic money supply causes the domestic currency to Show Answer

Q89) A lower domestic money supply causes the domestic currency to Show Answer

Q90) A lower domestic money supply causes the domestic currency to Show Answer

Q91) Decreasing the domestic money supply causes the domestic currency to Show Answer

Q92) Which of the following cause a depreciation of the domestic currency? Show Answer

Q93) Which of the following cause a depreciation of the domestic currency? Show Answer

Q94) Which of the following cause a depreciation of the domestic currency? Show Answer

Q95) Which of the following cause a depreciation of the domestic currency? Show Answer

Q96) Which of the following cause an appreciation of the domestic currency? Show Answer

Q97) Which of the following cause an appreciation of the domestic currency? Show Answer

Q98) Which of the following cause an appreciation of the domestic currency? Show Answer

Q99) Which of the following cause an appreciation of the domestic currency? Show Answer

Q100) A higher domestic money supply causes the domestic currency to Show Answer

Q101) A lower domestic money supply causes the domestic currency to Show Answer