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International 7. A bank exchanging foreign currency makes its profit in what manner? a) On the difference between the spot rate and the foreign rate b) A bank is forbidden, by law, to charge a premium in foreign currency exchange c) On the present value of the forward rate discounted to the date an option is purchased d) On the difference between the buying and selling rates 8- King's Bank, a British company, purchases market research services from bol bras Interactive, a U.S. company. As per the terms of the contract, payment is to be made three months later in U.S. dollars when the report is delivered. How would King's Bank like to see the exchange rate move, assuming it isn't hedging the transaction? a) It hopes that the U.S. dollar appreciates in value against the British pound. b) It hopes that the British pound appreciates in value against the U.S. dollar c) It makes no difference, since they are the customer and the sale takes place in the U.K. d) It hopes that there is no change between the spot rate and the forward rate. 9- The central bank of Country X buys and sells its own currency to ensure that the currency is always exchanged in a ratio of 2:1 with the currency of Country Y. What can we conclude about these two currencies? a) Country X is using the Euro. b) Country X has pegged its currency to the currency of Country Y. c) Country X has an undesirable currency. d) Country X allows its currency to float relative to the currency of Country Y. 10-When a currency is allowed to increase or decrease freely according to market forces, the currency is said to: a) be pegged to another currency. b) be less valuable. c) have independent float. - devalue. 9 9