MCQ 3 Flashcards

Question 1

Q

Assume that a bank’s bid rate on Japanese yen is $.0041 and its ask rate is $.0043. Its bidask percentage spread is:

a. about 4.99%.
b. about 4.88%.
c. about 4.65%.
d. about 4.43%.

Question 2

Q

The bid/ask spread for small retail transactions is commonly in the range of ____ percent.

a. 3 to 7
b. .01 to .03
c. 10 to 15
d. .5 to 1

Question 3

Q

If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need
C$200,000 in 90 days to make payment on imports from Canada, it could:
a. obtain a 90-day forward purchase contract on Canadian dollars.
b. obtain a 90-day forward sale contract on Canadian dollars.
c. purchase Canadian dollars 90 days from now at the spot rate.
d. sell Canadian dollars 90 days from now at the spot rate

Question 4

Q

Forward markets for currencies of developing countries are:

a. prohibited.
b. less liquid than markets for developed countries.
c. more liquid than markets for developed countries.
d. only available for use by government agencies

Question 5

Q

____ is not a bank characteristic important to customers in need of foreign exchange.
a. Quote competitiveness
b. Speed of execution
c. Forecasting advice
d. Advice about current market conditions
e. All of the above are important bank characteristics to customers in need of
foreign exchange.

Question 6

Q

The main participants in the international money market are:

a. consumers.
b. small firms.
c. large corporations.
d. small European firms needing European currencies for international trade

Question 7

Q

International money market transactions normally represent:

a. the equivalent of $1 million or more.
b. the equivalent of $1,000 to $10,000.
c. the equivalent of between $10,000 and $100,000.
d. the equivalent of between $100,000 and $200,000.

Question 8

Q

Futures contracts are typically ____; forward contracts are typically ____.

a. sold on an exchange; sold on an exchange
b. offered by commercial banks; sold on an exchange
c. sold on an exchange; offered by commercial banks
d. offered by commercial banks; offered by commercial banks

Question 9

Q

Which of the following is not true regarding the Bretton Woods Agreement?
a. It called for fixed exchange rates between currencies.
b. Governments intervened to prevent exchange rates from moving more than
1 percent above or below their initially established levels.
c. The agreement lasted from 1944 until 1971.
d. Each country used gold to back its currency.
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e. All of the above are true regarding the Bretton Woods Agreement.

Question 10

Q

The ADR of a British firm is convertible into 3 shares of stock. The share price of the firm
was 30 pounds when the British market closed. When the U.S. market opens, the
pound is worth $1.63. The price of this ADR should be $____.
a. 48.90
b. 146.70
c. 55.21
d. none of the above

Question 11

Q

Which of the following is probably not an example of the use of forward contracts by an
MNC?
a. Hedging pound payables by selling pounds forward
b. Hedging peso receivables by selling pesos forward
c. Hedging yen payables by purchasing yen forward
d. Hedging peso payables by purchasing pesos forward
e. All of the above are examples of using forward contracts.

Question 12

Q

Which of the following is probably not appropriate for an MNC wishing to reduce its
exposure to British pound payables?
a. Purchase pounds forward
b. Buy a pound futures contract
c. Buy a pound put option
d. Buy a pound call option

Question 13

Q

Futures contracts are sold on exchanges and are consequently ____ than forward
contracts, which can be ____ to satisfy an MNC’s needs.
a. more standardized; standardized
b. more standardized; custom-tailored
c. more custom-tailored; standardized
d. more custom-tailored; custom-tailored
e. less standardized; custom-tailored

Question 14

Q

An MNC’s short-term financing decisions are satisfied in the ____ market, while its
medium debt financing decisions are satisfied in the ____ market.
a. international money; international credit
b. international money; international bond
c. international credit; international money
d. international bond; international credit
e. international money; international stock

Question 15

Q

The LIBOR varies among currencies because the market supply of and demand for funds
vary among currencies.
a. True
b. False

Question 16

Q

An MNC with receivables in Japanese Yen purchases yen forward to hedge its exposure to
exchange rate fluctuations.
a. True
b. False

Question 17

Q

A currency put option provides the right, but not the obligation, to buy a specific currency
at a specific price within a specific period of time.
a. True
b. False

Question 18

Q

Which of the following is not true regarding ADRs?

a. ADRs are denominated in the currency of the stock’s home country.
b. ADRs enable U.S. investors to avoid cross-border transactions
c. ADRs allow non-U.S. firms to tap into U.S. market for funds.
d. ADRs sometimes allow for arbitrage opportunities.

Question 19

Q

The interest rate on the syndicated loan depends on the:
a. currency denominating the loan.
b. maturity of the loan.
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c. creditworthiness of the borrower.
d. interbank lending rate.
e. all of the above.

Question 20

Q

When obtaining a loan, the risk premium paid above LIBOR depends on the:

a. risk-free interest rate of the borrower.
b. credit risk of the borrower.
c. borrower’s stock price.
d. lender’s stock price.

Question 21

Q

The interest rate in developing countries is usually very low.

a. True
b. False

Question 22

Q

An obligation to purchase a specific amount of currency at a future point in time is called a:

a. call option
b. spot contract
c. put option
d. forward contract
e. both B and D

Question 23

Q

The strike price is also known as the premium price.

a. True
b. False

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MCQ 3 Flashcards

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