International Finance MCQ Questions and Answers for Practice

1. A floating exchange rate

1. is determined by the national governments involved
2. remains extremely stable over long periods of time
3. is determined by the actions of central banks
4. is allowed to vary according to market forces)

2. A forward contract to deliver British pounds for U)S) dollars could be described either as ..................or ...............

1. buying dollars forward; buying pounds forward
2. selling pounds forward; selling dollars forward
3. selling pounds forward; buying dollars forward
4. selling dollars forward; buying pounds forward

3. A forward currency transaction:

1. Is always at a premium over the spot rate
2. Means that delivery and payment must be made within one business day (USA/Canad
3. or two business days after the transaction date
4. Calls for exchange in the future of currencies at an agreed rate of exchange

4. A simultaneous purchase and sale of foreign exchange for two different dates is called

1. currency devalue
2. currency swap
3. currency valuation
4. currency exchange

5. A speculator in foreign exchange is a person who

1. buys foreign currency, hoping to profit by selling it a a higher exchange rate at some later date
2. earns illegal profit by manipulation foreign exchange
3. causes differences in exchange rates in different geographic markets
4. None of the above

6. A/An .............is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency)

1. Eurodollar transaction
2. import/export exchange
3. foreign exchange transaction
4. interbank market transaction

7. According to the Purchasing Power Parity (PPP) theory

1. Exchange rates between two national currencies will adjust daily to reflect price level differences in the two countries
2. In the long run, inflation rates in different countries will equalize around the world
3. In the long run, the exchange rates between two national currencies will reflect pricelevel differences in the two countries
4. None of the above

8. An arbitrageur in foreign exchange is a person who

1. earns illegal profit by manipulating foreign exchange
2. causes differences in exchange rates in different geographic markets
3. simultaneously buys large amounts of a currency in one market and sell it in another market
4. None of the above

9. An economist will define the exchange rate between two currencies as the:

1. Amount of one currency that must be paid in order to obtain one unit of another currency
2. Difference between total exports and total imports within a country
3. Price at which the sales and purchases of foreign goods takes place
4. Ratio of import prices to export prices for a particular country

10. Arbitrageurs in foreign exchange markets:

1. attempt to make profits by outguessing the market)
2. make their profits through the spread between bid and offer rates of exchange)
3. take advantage of the small inconsistencies that develop between markets)
4. need foreign exchange in order to buy foreign goods)

11. Ask quote is for

1. Seller
2. Buyer
3. Hedger
4. Speculator

12. By definition, currency appreciation occurs when

1. the value of all currencies fall relative to gold.
2. the value of all currencies rise relative to gold.
3. the value of one currency rises relative to another currency.
4. the value of one currency falls relative to another currency.

13. Counterparty risk is:

1. The risk of loss when exchange rates change during the period of a financial contract
2. Based on the notional amount of the contract
3. The risk of loss if the other party to a financial contract fails to honour its obligation
4. Present only with exchange-traded options

14. Covered interest rate parity occurs as the result of:

1. the actions of market-makers
2. interest rate arbitrage
3. purchasing power parity
4. stabilising speculation

15. Exchange rates

1. are always fixed
2. fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied
3. fluctuate to equate imports and exports
4. fluctuate to equate rates of interest in various countries