9) In which one of the following systems would it be least difficult to quantify the currency risk? A) pegged exchange rate system B) currency board C) target zone system D) floating exchange system 10) The exchange rate system in which a country allows the value of the currency to be determined by the market forces of supply and demand is known as a A) pegged exchange rate system. B) currency board. C) target zone. D) floating exchange rate. 11) What is the name of the value of the real resources that the central bank obtains through the creation of base money? A) seigniorage B) dollarization C) sterilized intervention D) target zone 12) The phenomenon of foreign currency driving out local currencies as a means of payment and a savings vehicle is known as ________. A) dollarization B) devaluation C) sterilization D) seigniorage 13) Which of the following bonds is least subject to the regulations of any particular country? A) domestic debentures B) dragon bonds C) domestic bonds D) foreign bonds 14) The hedging strategy that offsets foreign assets with foreign liabilities is known as ________ hedge. A) balance-sheet B) an income-statement C) decentralized equity D) decentralized debt 15) Which type of bond is denominated in one or more currencies but is traded in external markets outside the borders of the countries issuing the currencies? A) domestic bond B) international bond C) Eurobond D) foreign bond 16) What is the name given to the straight fixed-rate bond issued in one currency which pays coupon interest in that same currency, but the promised repayment of principal at maturity is denominated in another currency? A) foreign bond B) international bond C) equity-related bond D) dual-currency bond 17) What is the name given to the banks that perform both traditional commercial banking and investment banking functions? A) full-service banks B) universal banks C) affiliate banks D) merchant banks 18) What is the name given to a small service facility that is staffed by a parent bank personnel and designed to assist the clients of the parent bank in their dealings with information about local business practices and credit evaluation of the MNC's foreign customers? A) representative office B) international banking facility C) offshore banking center D) foreign branch of a bank 19) What is the name of the important phenomenon that has led to globalization of exchanges around the world over the past two decades? A) cross-listing B) securitization C) cross-holding D) cross-market 20) 21) 22) 23) 24) 25) 26) 27) What are the costs of Cross-listing? A) It exploits growth opportunities with additional foreign capital. B) It increases the stock price C) It reduces the cost of capital D) It costs money paid in exchange fees and it may impose a high level of examination on the company's managers. Which one of the following is a false statement about Level I ADRs? A) Transactions are completed in a centralized market place. B) No new capital is being raised when firms list under this level. C) The OTC market is composed of a network of broker/dealers. D) These receipts trade over the counter in New York in pink sheet trading. Which of the following concepts refers to the process of converting exchanges from nonprofit, member-owned organizations to for-profit investor-owned and typically publicly traded companies? A) consolidation B) demutualization C) alternative trading system D) cross-listing ________, unlike ADRs, can trade across many markets and settle in the currency of each market. A) Global depository receipts B) Cross-listed stock C) Euro equities D) Global registered shares Cross-listing of stocks and demutualization have led to the ________ of stock exchanges. A) Externalization B) Securitization C) order-driven trading systems D) Globalization What is the name of the effect related to market liquidity that occurs when a market lacks liquidity and an investor's trade is relatively large and results in an adverse effect on the price the investor gets? A) blocked funds B) market impact C) turnover D) demutualization The theory of relative purchasing power parity implies that, between two nations, the ________. A) inflation rate is smaller in weaker currencies B) inflation rates are unrelated C) the real exchange rate should be constant D) the interest rate is greater than the inflation rate Relative PPP implies what value for the change of the real exchange rate z? 28) next several years. If the current spot rate for the Mexican peso is $.005, what is the spot value in 3 years? A) $.01190 B) $.00321 C) $.00102 D) $.00276 29) What is the largest financial market in the world measured in dollar-volume trade? A) the currency markets B) the U.S. stock markets C) the forward and swap currency markets D) the global market for loanable funds Suppose annual inflation rates in the U.S. and Mexico are expected to be 6% and 80%, respectively, over the 30) Which one of the following are the main participants in the global currency markets? A) hedge funds B) insurance companies C) private equity funds D) commercial banks 31) What do the market makers in the currency markets provide? A) stability B) solvency C) insurance against default by the buyers D) liquidity 32) Which one of the following firms dominates the foreign exchange markets? A) UBS B) Deutsche Bank C) Citigroup D) no one firm dominates 33) When an exchange rate is quoted by a dealer in country as the local currency price of one unit of foreign currency, he is quoting the ________. A) bid quote B) indirect quote C) direct quote D) ask quote 34) What currency currently serves as the world's primary vehicle currency? A) European euro B) British pound C) U.S. Dollar D) Japanese yen 35) If you were trading currency in the New York currency market, the exchange rate between two currencies not expressed in U.S. dollars would be known as the ________ quote. A) direct B) European C) cross-rate D) indirect 36) What is the name of the rate currency traders quote in the interbank market to sell foreign currencies? A) ask rate B) cross rate C) bid rate D) bid-ask spread 37) The fourth decimal place in a dealer's quote in the trade jargon is known as the A) haircut. B) pip. C) spread. D) round trip. 38) What is the name of the risk that a financial institution may not deliver the currency on one side of a completed currency transaction? A) Herstatt risk B) dealer risk C) market risk D) Exchange rate risk 39) The cash manager at AmFlex Company needs to buy 1,000,000 British pounds to pay a British supplier. A currency broker quotes him a bid-ask rate of .4865-.5116/US$. What will be the dollar cost the 1,000,000 pounds? A) $486,618 B) $511,587 C) $2,055,499 D) $1,954,652 40) The broker at Deutsche Bank quotes bid-ask rates of 104.15-30/$. What would be its direct asking price for yen? A) .0061/ B) 159.24/ C) 164.25/ D) .00628/ 41) What is the name of the contract where corporations, institutional investors, and individuals are required to pay or to receive a specific amount of foreign currency at a specific exchange rate at a particular date in the future? A) future hedge contract B) forward rate contract C) forward currency contract D) forward foreign exchange market 42) What is the name of the exchange rate specified in the forward contract? A) forward rate B) future exchange rate C) spot rate D) cross-rate 43) If the forward price of a currency contract is lower than the spot rate, the currency is said to be at a A) forward premium. B) forward swap rate. C) future expected exchange rate. D) forward discount. 44) If the euro is selling at a premium relative to the USD in the forward market, is the forward price of USD /EUR larger or smaller than the spot price of the USD /EUR? A) indeterminate B) larger C) the same D) smaller 45) It is 1998. The spot and 30day forward rates for the Dutch guilder are $.3075 and $.3120, respectively. The guilder is said to be selling at a forward A) premium of 16.83% B) discount of 15.10% C) discount of 6.39% D) premium of 17.56% 46) The term covered means the investment is ________ transaction foreign exchange risk. A) completely free from B) exposed to C) structured to activate forward contracts that free it from D) hedged against 47) If interest rate parity is in effect, there are ________. A) currency dealers will be motivated to arbitrage forward market contracts B) many opportunities for covered interest arbitrage C) no profitable opportunities for covered interest arbitrage D) currency dealers will arbitrage interest rate differentials in different countries 48) When the forward premium or discount on the foreign currency equals the interest differential between the domestic and foreign interest rates divided by one plus the foreign interest rate, what is being satisfied? A) domestic and foreign interest rates B) interest rate parity C) covered interest arbitrage D) spot and forward exchange rates 49) When one of the counterparties to an agreement globally may possibly fail to honor its contract, it is known as ________ risk. A) interest rate B) business C) default D) transaction 50) When the possibility exists that the government of a nation may impose some form of exchange controls or tax on foreign investment, the risk is known as ________ risk. A) business risk B) exchange controls C) political D) government 51) Assume that the bid-ask spread for the USD/GBP exchange rate in percentage terms is equal to 0.06%. If the dealer's ask quote is 1.50 USD/GBP, then at what price are you going to sell British pounds for American dollars? 52) 53) 54) 55) 56) 57) 58) 59) A Yankee bond is, A) A dollar denominated bond issued by Deutsche bank in the U.S. market. B) A dollar denominated bond issued by GE in the Japanese fixed income markets. C) A euro denominated bond issued by Deutsche bank in Europe. D) A and C. Suppose that the interest rate is 5 % p.a. in Italy, the spot exchange rate is $1.20/, and the one-year forward exchange rate is $1.18/. What is the one-year effective interest rate in USD under the IRP? A) 1.2833% B) 1.0128% C) 4.7500% D) None of the above. A dual-currency bond, A) is a combination of a bond and a forward exchange rate contract, [B) can be used to solve the original sin problem, C) A and B If the UIRP does not hold then, A) One should use the international I-CAPM to calculate the cost of capital, B) The world CAPM holds, C) The forward exchange rate is unbiased estimator of future spot FOREX D) A and C If the real exchange rate Z >1 then, A) absolute purchasing parity holds B) competitiveness of the domestic currency improves C) competitiveness of the domestic currency deteriorates D) competitiveness of the domestic currency is unaltered If the real exchange rate between two monies is equal to 1, and the general price levels in the local and foreign economies are equal to 100 and 150 respectively, what is the nominal exchange rate expressed in direct terms? Banco Santander International is a U.S. federally chartered bank located in Miami authorized to engage in international banking activities. This is a, A) Offshore banking center C) Correspondent bank of Banco Santander in Madrid B) Edge Bank D) Foreign branch The FOREX market is, A) A two-tiered OTC mostly market C) A very illiquid retail market B) Almost perfectly competitive market D) A and B