Foreign Exchange MCQs

Option A: exchange rates to be insensitive to the differential rates of inflation between countries

Option B: the currencies of relatively high-inflation countries to depreciate

Option C: the currencies of relatively high inflation countries to appreciate

Option D: the currencies of relatively low inflation countries to depreciate

Correct Answer: the currencies of relatively high-inflation countries to depreciate ✔

Option A: a weakening of a currency

Option B: A depreciation of a currency

Option C: An appreciation of a currency

Option D: a debasement of a currency

Correct Answer: An appreciation of a currency ✔

Option A: has no predictable effect on the price of the pound sterling?

Option B: does not affect the price of the pound sterling

Option C: tends to appreciate the pound sterling

Option D: tends to depreciate the pound sterling

Correct Answer: tends to appreciate the pound sterling ✔

Option A: floating exchange rates

Option B: pegged exchange rates

Option C: managed exchange rates

Option D: fixed exchange rates

Correct Answer: floating exchange rates ✔

Option A: of essentially fixed exchange rates under which each country agreed to intervene in the foreign exchange market when necessary to maintain the agreed upon value of its currency

Option B: in which the value of currencies was fixed in terms of a specific number of ounces of gold, which in turn determined their values in international trading

Option C: of floating exchange rates determined of the supply and demand of one nation’s currency relative to the currency of other nations

Option D: That prohibited governments from intervening in the foreign exchange markets

Correct Answer: of essentially fixed exchange rates under which each country agreed to intervene in the foreign exchange market when necessary to maintain the agreed upon value of its currency ✔

Option A: exchange rate

Option B: balance of trade

Option C: terms of trade

Option D: currency valuation

Correct Answer: exchange rate ✔

Option A: forward contracts occur in a specific locations-for example, the Chicago Mercantile Exchange

Option B: futures contracts have negotiable delivery dates

Option C: forward contracts can be tailored in amount and delivery date to the need of importers of exporters

Option D: futures contracts involve no brokerage fees or other transactions costs

Correct Answer: forward contracts can be tailored in amount and delivery date to the need of importers of exporters ✔

Option A: destabilizing

Option B: stabilizing

Option C: inflationary

Option D: deflationary

Correct Answer: stabilizing ✔

Option A: $0.0909

Option B: $0.1002

Option C: $0.2826

Option D: $1.1024

Correct Answer: $0.0909 ✔

Option A: sell; appreciation

Option B: sell; depreciation

Option C: buy; depreciation

Option D: buy; appreciation

Correct Answer: sell; depreciation ✔

Option A: forward contract

Option B: spot contract

Option C: money contract

Option D: bid contract

Correct Answer: forward contract ✔

Option A: profit

Option B: arbitrage

Option C: spread

Option D: forward transaction

Correct Answer: spread ✔

Option A: forward transaction

Option B: spot transaction

Option C: swap transaction

Option D: None of the above

Correct Answer: forward transaction ✔

Option A: hedging

Option B: speculation

Option C: intervention

Option D: arbitrage

Correct Answer: hedging ✔

Option A: increase in the demand for yen

Option B: decrease in the demand for yen

Option C: increase in the supply of yen

Option D: decrease in the Supply of yen

Correct Answer: increase in the demand for yen ✔

Option A: America’s demand for Swiss merchandise rises

Option B: America’s demand for Swiss merchandise falls

Option C: Switzerland’s demand for American merchandise rises

Option D: Switzerland’s demand for American merchandise falls

Correct Answer: C. Switzerland’s demand for American merchandise rises ✔

Option A: letter a credit

Option B: foreign currency option

Option C: cable transfer

Option D: bill of exchange

Correct Answer: foreign currency option ✔

Option A: constant

Option B: inelastic

Option C: elastic

Option D: Unitary elastic

Correct Answer: elastic ✔

Option A: decrease; depreciate

Option B: decrease; appreciate

Option C: increase; depreciate

Option D: increase; appreciate

Correct Answer: increase; appreciate ✔

Option A: upward sloping

Option B: downward sloping

Option C: vertical

Option D: any of the above

Correct Answer: upward sloping ✔

Option A: GDP usually decreases before it increases after a currency depreciation

Option B: the trade balance usually gets worse before it improves after a currency depreciation

Option C: the trade balance usually gets better before it gets worse after a currency appreciation

Option D: GDP usually decreases before it increases after a currency appreciation

Correct Answer: the trade balance usually gets worse before it improves after a currency depreciation ✔

Option A: depreciate under a system of fixed exchange rates

Option B: depreciate under a system of floating exchange rates

Option C: appreciate under a system of floating exchange rates

Option D: appreciate under a system of floating fixed rates

Correct Answer: depreciate under a system of floating exchange rates ✔

Option A: price feedback theory

Option B: trade feedback theory

Option C: J-curve theory

Option D: purchasing power parity theory

Correct Answer: purchasing power parity theory ✔

Option A: a depreciation of a currency

Option B: a strengthening of a currency

Option C: a floating of a currency

Option D: an appreciation of a currency

Correct Answer: a depreciation of a currency ✔

Option A: tends to lead to an appreciation of a nation’s currency

Option B: tends to lead to a depreciation of a nation’s currency

Option C: usually has no effect on a currency’s exchange value

Option D: tends to lead to a depreciation of the currencies of other nations

Correct Answer: B. tends to lead to a depreciation of a nation’s currency ✔

Option A: as the money supply is decreased the interest rate will increase and the price of UK exports will rise and the Price of UK imports will fall

Option B: as the money supply is decreased the interest rate will increase, and the price of UK exports will fall and the price of UK imports will rise

Option C: as the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall.

Option D: as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise

Correct Answer: as the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall. ✔

Option A: adopted a new system of fixed exchange rates

Option B: gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand

Option C: adopted single internationally accepted currency whose use is limited to international transactions

Option D: returned to the gold standard

Correct Answer: gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand ✔

Option A: hard currency

Option B: foreign exchange

Option C: reserve currencies

Option D: near monies

Correct Answer: foreign exchange ✔

Option A: attempt to profit by trading on expectations about future currency prices

Option B: bear risk as they attempt to ____ beat the market||

Option C: attempt to buy currency at a low price and later resell that currency at a higher price

Option D: Simultaneously buy a currency at a low price and sell that currency at a higher price, making a riskless profit

Correct Answer: Simultaneously buy a currency at a low price and sell that currency at a higher price, making a riskless profit ✔

Option A: reflects only the influences of merchandise or real trade on the dollar’s exchange value

Option B: reflects only transactions in the currency futures market

Option C: is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?

Option D: is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?

Correct Answer: is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation? ✔

Option A: currency arbitrage

Option B: interest arbitrage

Option C: short positions

Option D: long positions

Correct Answer: interest arbitrage ✔

Option A: his desire to open a bank account in Japan

Option B: his desire to purchase an automobile produced domestically

Option C: his desire to travel to Europe

Option D: his desire to purchase Treasury bills issued by the British government

Correct Answer: his desire to purchase an automobile produced domestically ✔

Option A: Norway’s export goods become more expensive to Norway’s residents

Option B: Norway’s exports goods become cheaper to Sweden’s residents

Option C: Sweden’s export goods become cheaper to Norway’s residents

Option D: Sweden’s export goods become cheaper to Sweden’s residents

Correct Answer: C. Sweden’s export goods become cheaper to Norway’s residents ✔

Option A: forward discount

Option B: forward premium

Option C: forward spread

Option D: None of these

Correct Answer: forward discount ✔

Option A: differential actions

Option B: cash transaction

Option C: arbitrage

Option D: forward transactions

Correct Answer: arbitrage ✔

Option A: 2.0

Option B: 1.999

Option C: 2.323

Option D: 2.222

Correct Answer: 2.222 ✔

Option A: Swap

Option B: foreign exchange arbitrage

Option C: foreign exchange option

Option D: futures market contract

Correct Answer: foreign exchange option ✔

Option A: hedging

Option B: speculation

Option C: government regulation

Option D: arbitrage

Correct Answer: arbitrage ✔

Option A: upward

Option B: vertical

Option C: downward

Option D: horizontal

Correct Answer: downward ✔

Option A: China

Option B: Germany

Option C: United Kingdom

Option D: USA

Correct Answer: United Kingdom ✔

Option A: flows of foreign investment into the United States

Option B: rising price inflation in the United States

Option C: a substantial decrease in U.S imports

Option D: a substantial increase in U.S exports

Correct Answer: flows of foreign investment into the United States ✔

Option A: Price inflation in the United States

Option B: an increase in U.S real income

Option C: a decrease in the British money supply

Option D: falling interest rates in Britain

Correct Answer: falling interest rates in Britain ✔

Option A: 2 francs per dollar

Option B: 1 franc per dollar

Option C: $2 per franc

Option D: $3 per franc

Correct Answer: 2 francs per dollar ✔

2. euro
3. Chinese Yuan
4. British pound
5. U.S dollar

Correct Answer: 5. U.S dollar ✔