International Finance MCQ Quiz - Multiple Choice Questions & Answers Page 3

21. If one anticipates that the pound sterling is going to appreciate against the US dollar, one might speculate by ..............pound call options or .............pound put options.

1. buying; buying
2. selling; buying
3. selling; selling
4. buying; selling

22. If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with

1. international monetary credits.
2. dollars.
3. yuan, the Chinese currency.
4. euros, or any other third currency.

23. If purchasing power parity were to hold even in the short run, then:

1. real exchange rates should tend to decrease over time;
2. quoted nominal exchange rates should be stable over time.
3. real exchange rates should tend to increase over time;
4. real exchange rates should be stable over time;

24. If the U.S. dollar appreciates relative to the British pound,

1. it will take fewer dollars to purchase a pound
2. it will take more dollars to purchase a pound
3. it is called a weakening of the dollar
4. both a & c

25. If transaction exposure are in same dates, then it can be hedged

1. By purchasing single forward contract
2. By purchasing multiple forward contract
3. Cannot be hedged by forward contracts
4. None of the above

26. In a quote exchange rate, the currency that is to be purchase with another currency is called the

1. liquid currency
2. foreign currency
3. local currency
4. base currency

27. In the foreign exchange market, the ............of one country is traded for the .............of another country.

1. currency; currency
2. currency; financial instruments
3. currency; goods
4. goods; goods

28. Interest Rate Parity (IRP) implies that:

1. Interest rates should change by an equal amount but in the opposite direction to the difference in inflation rates between two countries
2. The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency
3. The interest rates between two countries start in equilibrium, any change in the differential rate of inflation between the two countries tends to be offset over the longterm by an equal but opposite change in the spot exchange rate
4. In the long run real interest rate between two countries will be equal

29. Interest rate swaps are usually possible because international financial markets in different countries are

1. Efficient
2. Perfect
3. Imperfect
4. Both a & b

30. It is very difficult to interpret news in foreign exchange markets because:

1. very little information is publicly available
2. most of the news is foreign
3. it is difficult to know which news is relevant to future exchange rates
4. it is difficult to know whether the news has been obtained legally