International Financial Management 8th Edition by Cheol Eun - Test Bank
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International Financial Management 8th Edition by Cheol Eun - Test Bank

International Financial Management 8th Edition by Cheol Eun - Test Bank   Instant Download - Complete Test Bank With Answers     Sample Questions Are Posted Below   International Financial Management, 8e (Eun) Chapter 5   The Market for Foreign Exchange   1) The world's largest foreign exchange trading center is A) New York. B) Tokyo. …

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International Financial Management 8th Edition by Cheol Eun – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

International Financial Management, 8e (Eun)

Chapter 5   The Market for Foreign Exchange

 

1) The world’s largest foreign exchange trading center is

  1. A) New York.
  2. B) Tokyo.
  3. C) London.
  4. D) Hong Kong.

 

2) On average, worldwide daily trading of foreign exchange is closest to

  1. A) $100 million.
  2. B) $15 billion.
  3. C) $504 billion.
  4. D) $5 trillion.

 

3) The foreign exchange market closes

  1. A) never.
  2. B) 4:00 p.m. EST (New York time).
  3. C) 4:00 p.m. GMT (London time).
  4. D) 4:00 p.m. (Tokyo time).

 

4) Most foreign exchange transactions are for

  1. A) intervention by central banks.
  2. B) interbank trades between international banks or nonbank dealers.
  3. C) retail trade.
  4. D) purchase of hard currencies.

 

5) The difference between a broker and a dealer is

  1. A) dealers sell drugs; brokers sell houses.
  2. B) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy and sell from their inventory.
  3. C) brokers transact in stocks and bonds; currency is bought and sold through dealers.
  4. D) none of the options

 

6) Most interbank trades are

  1. A) speculative or arbitrage transactions.
  2. B) simple order processing for the retail client.
  3. C) overnight loans from one bank to another.
  4. D) brokered by dealers.

7) At the wholesale level,

  1. A) most trading takes place OTC between individuals on the floor of the exchange.
  2. B) most trading takes place over the phone.
  3. C) most trading flows over Reuters and EBS platforms.
  4. D) most trading flows through specialized “broking” firms.

 

 

8) Intervention in the foreign exchange market is the process of

  1. A) a central bank requiring the commercial banks of that country to trade at a set price level.
  2. B) commercial banks in different countries coordinating efforts in order to stabilize one or more currencies.
  3. C) a central bank buying or selling its currency in order to influence its value.
  4. D) the government of a country prohibiting transactions in one or more currencies.

 

9) The standard size foreign exchange transactions are for

  1. A) $10 million USD.
  2. B) $1 million USD.
  3. C) €1 million.
  4. D) none of the options

 

10) Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in euros, at a cost of €512,100. The U.S. importer will contact his U.S. bank (where of course he has an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank quotes as €1.0242/$1.00. The importer accepts this price, so his bank will ________ the importer’s account in the amount of ________.

  1. A) debit; $500,000
  2. B) debit; $524,492
  3. C) credit; $500,000
  4. D) debit; €512,100

 

11) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A’s correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

  1. A) Bank A’s dollar-denominated account at B will fall by $90,000.
  2. B) Bank B’s dollar-denominated account at A will rise by $90,000.
  3. C) Bank A’s pound-denominated account at B will rise by £45,000.
  4. D) Bank B’s pound-denominated account at A will fall by £45,000.
  5. E) all of the options

12) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A’s correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

  1. A) Bank A’s dollar-denominated account at B will rise by $90,000.
  2. B) Bank B’s dollar-denominated account at A will fall by $90,000.
  3. C) Bank A’s pound-denominated account at B will rise by £45,000.
  4. D) Bank B’s pound-denominated account at A will rise by £45,000.

 

13) The current exchange rate is €1.00 = $1.50. Compute the correct balances in Bank A’s correspondent account(s) with Bank B if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $150,000 using its correspondent relationship with Bank B.

  1. A) Bank A’s dollar-denominated account at B will fall by $150,000.
  2. B) Bank B’s dollar-denominated account at A will fall by $150,000.
  3. C) Bank A’s pound-denominated account at B will fall by €100,000.
  4. D) Bank B’s pound-denominated account at A will rise by €100,000.

 

14) The spot market

  1. A) involves the almost-immediate purchase or sale of foreign exchange.
  2. B) involves the sale of futures, forwards, and options on foreign exchange.
  3. C) takes place only on the floor of a physical exchange.
  4. D) all of the options

 

15) Spot foreign exchange trading

  1. A) accounted for about 5 percent of all foreign exchange trades in 2013.
  2. B) accounted for about 20 percent of all foreign exchange trades in 2013.
  3. C) accounted for about 40 percent of all foreign exchange trades in 2013.
  4. D) accounted for about 70 percent of all foreign exchange trades in 2013.

16)

Country U.S. $ equiv. Currency per U.S. $  
  Tuesday Monday Tuesday Monday
Britain (Pound) £62,500 1.6000 1.6100 0.6250 0.6211
1 Month Forward 1.6100 1.6300 0.6211 0.6173
3 Months Forward 1.6300 1.6600 0.6173 0.6024
6 Months Forward 1.6600 1.7200 0.6024 0.5814
12 Months Forward 1.7200 1.8000 0.5814 0.5556

 

Using the table shown, what is the most current spot exchange rate shown for British pounds? Use a direct quote from a U.S. perspective.

  1. A) $1.61 = £1.00
  2. B) $1.60 = £1.00
  3. C) $1.00 = £0.625
  4. D) $1.72 = £1.00

 

17) Suppose that the current exchange rate is €0.80 = $1.00. The direct quote, from the U.S. perspective is

  1. A) €1.00 = $1.25.
  2. B) €0.80 = $1.00.
  3. C) £1.00 = $1.80.
  4. D) none of the options

 

18) Suppose that the current exchange rate is €1.00 = $1.60. The indirect quote, from the U.S. perspective is

  1. A) €1.00 = $1.60.
  2. B) €0.6250 = $1.00.
  3. C) €1.60 = $1.00.
  4. D) none of the options

 

 

19) Suppose that the current exchange rate is £1.00 = $2.00. The indirect quote, from the U.S. perspective is

  1. A) £1.00 = $2.00.
  2. B) £1.00 = $0.50.
  3. C) £0.50 = $1.00.
  4. D) none of the options

 

20) Indirect exchange rate quotations from the U.S. perspective are

  1. A) the price of one unit of the foreign currency in terms of the U.S. dollar.
  2. B) the price of one U.S. dollar in the foreign currency.

21) It is common practice among currency traders worldwide to both price and trade currencies against the U.S. dollar. In fact, 2013 BIS statistics indicate that about ________ of currency trading in the world involves the U.S. dollar on one side of the transaction.

  1. A) 87 percent
  2. B) 75 percent
  3. C) 45 percent
  4. D) 15 percent

 

22) It is common practice among currency traders worldwide to both price and trade currencies against the U.S. dollar. Consider a currency dealer who makes a market in 5 currencies against the dollar. If he were to supply quotes for each currency in terms of all of the others, how many quotes would he have to provide?

  1. A) 36
  2. B) 30
  3. C) 60
  4. D) 120
  5. E) none of the options

 

23) The bid price

  1. A) is the price that the dealer has just paid for something, his historical cost of the most recent trade.
  2. B) is the price that a dealer stands ready to pay.
  3. C) refers only to auctions like eBay, not over-the-counter transactions with dealers.
  4. D) is the price that a dealer stands ready to sell at.

 

24) Suppose the spot ask exchange rate, Sa($/£), is $1.90 = £1.00 and the spot bid exchange rate, Sb($/£), is $1.89 = £1.00. If you were to buy $10,000,000 worth of British pounds and then sell them five minutes later, how much of your $10,000,000 would be “eaten” by the bid-ask spread?

  1. A) $1,000,000
  2. B) $52,910
  3. C) $100,000
  4. D) $52,632

 

 

25) If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and ask prices are

  1. A) €0.6667 and €0.6623.
  2. B) $1.51 and $1.50.
  3. C) €0.6623 and €0.6667.
  4. D) cannot be determined with the information given.

26) In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.2519-$1.2523. The “big figure,” assumed to be known to all traders is ________.

  1. A) 1.2523
  2. B) 1
  3. C) 1.25
  4. D) 23

 

27) In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.2519-$1.2523. The currency dealer would likely quote that as ________.

  1. A) 19-23
  2. B) 23-19
  3. C) 4 points
  4. D) none of the options

 

28) In the Interbank market, the standard size of a trade among large banks in the major currencies is

  1. A) for the U.S.-dollar equivalent of $10,000,000,000.
  2. B) for the U.S.-dollar equivalent of $10,000,000.
  3. C) for the U.S.-dollar equivalent of $100,000.
  4. D) for the U.S.-dollar equivalent of $1,000.

 

29) A dealer in British pounds who thinks that the pound is about to appreciate

  1. A) may want to widen his bid-ask spread by raising his ask price.
  2. B) may want to lower his bid price.
  3. C) may want to lower his ask price.
  4. D) none of the options

 

30) A dealer in British pounds who thinks that the pound is about to depreciate

  1. A) may want to widen his bid-ask spread by raising his ask price and lowering his bid.
  2. B) may want to lower both his bid price and his ask price.
  3. C) may want to lower his ask price while raising his bid.
  4. D) none of the options

 

31) A dealer in pounds who thinks that the exchange rate is about to increase in volatility

  1. A) may want to widen his bid-ask spread.
  2. B) may want to decrease his bid-ask spread.
  3. C) may want to lower his ask price.
  4. D) none of the options

32)

Country U.S. $ equiv. Currency per U.S. $  
  Tuesday Monday Tuesday Monday
Britain (Pound) £62,500 2.0000 1.9800 0.5000 0.5051
1 Month Forward 2.0100 1.9900 0.4975 0.5025
3 Months Forward 2.0200 2.0000 0.4950 0.5000
6 Months Forward 2.0300 2.0100 0.4926 0.4975
12 Months Forward 2.0400 2.0200 0.4902 0.4950
Euro £62,500 1.5000 1.4800 0.6667 0.6757
1 Month Forward 1.5100 1.4900 0.6623 0.6711
3 Months Forward 1.5200 1.5000 0.6579 0.6667
6 Months Forward 1.5300 1.5100 0.6536 0.6623
12 Months Forward 1.5400 1.5200 0.6494 0.6579

 

Using the table shown, what is the spot cross-exchange rate between pounds and euro?

  1. A) €1.00 = £0.75
  2. B) £1.33 = €1.00
  3. C) £1.00 = €0.75
  4. D) none of the options

 

33) The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the euro-yen cross rate?

  1. A) €125 = ¥1.00
  2. B) €1.00 = ¥125
  3. C) €1.00 = ¥0.80
  4. D) none of the options

 

34) Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00. Calculate the euro-pound crossrate.

  1. A) £1 = €1.60
  2. B) £1 = €0.625
  3. C) £2.50 = €1
  4. D) £1 = €2.50

 

35) The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$. The AUD/SF cross exchange rate is ________.

  1. A) 0.7813
  2. B) 2.0000
  3. C) 1.2800
  4. D) 0.3500

 

36) Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00. Calculate the euro-pound exchange rate.

  1. A) €1.3333 = £1.00
  2. B) £1.3333 = €1.00
  3. C) €3.00 = £1
  4. D) €1.25 = £1.00

 

37) Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00. Calculate the euro-pound exchange rate.

  1. A) €1.3333 = £1.00
  2. B) £1.3333 = €1.00
  3. C) €3.00 = £1
  4. D) €1.25 = £1.00

 

38) Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00. Calculate the euro-yen exchange rate.

  1. A) ¥133.33 = €1.00
  2. B) ¥1.00 = €180
  3. C) ¥80 = €1.00
  4. D) €1 = £2.50

 

39) Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90. Calculate the euro-pound exchange rate.

  1. A) €1.3103 = £1.00
  2. B) £1.3333 = €1.00
  3. C) €2.00 = £1
  4. D) €3 = £1

 

40)

  USD equivalent
Country BID ASK
Switzerland (Franc) CHF 0.7648 0.7652
Euro € 1.4000 1.4200

 

What is the BID cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Swiss francs.

  1. A) €0.5386/CHF
  2. B) €0.5389/CHF
  3. C) €0.5463/CHF
  4. D) €0.5466/CHF

 

41)

  USD equivalent
Country BID ASK
Switzerland (Franc) CHF 0.7648 0.7652
Euro € 1.4000 1.4200

 

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

  1. A) €0.5386/CHF
  2. B) €0.5389/CHF
  3. C) €0.5463/CHF
  4. D) €0.5466/CHF

 

42) Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.

  1. A) €1.25/£1.00
  2. B) $1.25/£1.00
  3. C) £1.25/€1.00
  4. D) €0.80/£1.00

 

43)

  USD equivalent
Country BID ASK
Canada (Dollar) 0.8653 0.8667
Euro € 1.4000 1.4200

 

What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Canadian dollars.

  1. A) €0.6094/CAD
  2. B) €0.6104/CAD
  3. C) €0.6181/CAD
  4. D) €0.6191/CAD

 

44)

  USD equivalent
Country BID ASK
Canada (Dollar) 0.8653 0.8667
Euro € 1.4000 1.4200

 

What is the ASK cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Canadian dollars.

  1. A) €0.6094/CAD
  2. B) €0.6104/CAD
  3. C) €0.6181/CAD
  4. D) €0.6191/CAD

 

45) Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120.

  1. A) €192/¥1.00
  2. B) €1.92/¥100
  3. C) €1.25/¥1.00
  4. D) €1.00/¥1.92

 

46) The euro-pound cross exchange rate can be computed as:

  1. A) S(€/£) = S($/£) × S(€/$)
  2. B) S(€/£) =
  3. C) S(€/£) =
  4. D) all of the options

 

47) Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.

  1. A) In dealer jargon, this is a currency against currency trade.
  2. B) The bank will frequently handle such a trade by selling British pounds for U.S. dollars and then buying Swiss francs with U.S. dollars.
  3. C) The bank would typically sell the British pounds directly for Swiss francs.
  4. D) In dealer jargon, this is a currency against currency trade, and the bank will frequently handle such a trade by selling British pounds for U.S. dollars and then buying Swiss francs with U.S. dollars.

48) Including the transaction costs of the bid-ask spread, the euro-pound cross exchange rate for a customer who wants to sell euro and buy pounds can be computed as

  1. A) Sb(£/€) = Sb($/€) × Sb(£/$)
  2. B) Sa(€/£) = Sa(€/$) × Sa($/£)
  3. C) Sb(€/£) = Sb($/€) ×
  4. D) all of the options

 

49) Suppose a bank customer with €1,000,000 wishes to trade out of euro and into Japanese yen. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120. How many yen will the customer get?

  1. A) ¥192,000,000
  2. B) ¥5,208,333
  3. C) ¥75,000,000
  4. D) ¥5,208.33

 

50)

  American Terms   European Terms  
Bank Quotations Bid   Ask   Bid   Ask  
British pounds $ 1.9712     $ 1.9717     £ 0.5072     £ 0.5073  
Euros $ 1.4738     $ 1.4742     € 0.6783     € 0.6785  

 

Using the table above, what is the bid price of pounds in terms of euro?

  1. A) €1.3371/£
  2. B) €1.3378/£
  3. C) £0.7475/€
  4. D) £0.7479/€

 

51)

  American Terms   European Terms  
Bank Quotations Bid   Ask   Bid   Ask  
British pounds $ 1.9712     $ 1.9717     £ 0.5072     £ 0.5073  
Euros $ 1.4738     $ 1.4742     € 0.6783     € 0.6785  

 

Using the table above, what is the ask price of pounds in terms of euro?

  1. A) €1.3371/£
  2. B) €1.3378/£
  3. C) £0.7475/€
  4. D) £0.7479/€

52)

  American Terms   European Terms  
Bank Quotations Bid   Ask   Bid   Ask  
British pounds $ 1.9712     $ 1.9717     £ 0.5072     £ 0.5073  
Euros $ 1.4738     $ 1.4742     € 0.6783     € 0.6785  

 

Using the table above, what is the bid price of euro in terms of pounds?

  1. A) €1.3371/£
  2. B) €1.3378/£
  3. C) £0.7475/€
  4. D) £0.7479/€

 

 

53)

  American Terms   European Terms  
Bank Quotations Bid   Ask   Bid   Ask  
British pounds $ 1.9712     $ 1.9717     £ 0.5072     £ 0.5073  
Euros $ 1.4738     $ 1.4742     € 0.6783     € 0.6785  

 

Using the table above, what is the ask price of euro in terms of pounds?

  1. A) €1.3371/£
  2. B) €1.3378/£
  3. C) £0.7475/€
  4. D) £0.7479/€

 

54) Suppose you observe the following exchange rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00. Starting with $1,000,000, how can you make money?

  1. A) Exchange $1m for £625,000 at £1 = $1.60. Buy €1,250,000 at €2 = £1.00; trade for $1,062,500 at €1 = $.85.
  2. B) Start with dollars, exchange for euros at €1 = $.85; exchange for pounds at €2.00 = £1.00; exchange for dollars at £1 = $1.60.
  3. C) Start with euros; exchange for pounds; exchange for dollars; exchange for euros.
  4. D) No arbitrage profit is possible.

 

55) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.50, how much money can an astute trader make?

  1. A) No arbitrage is possible
  2. B) $1,160,000
  3. C) $500,000
  4. D) $250,000

56) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.20 how much money can an astute trader make?

  1. A) No arbitrage is possible
  2. B) $1,160,000
  3. C) $41,667
  4. D) $40,000

 

57) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.20 how can you make money?

  1. A) No arbitrage is possible
  2. B) Buy euro at $1.60/€, buy £ at €1.20/£, sell £ at $2/£
  3. C) Buy £ $2/£, buy € at €1.20/£, sell € at $1.60/€
  4. D) none of the options

 

 

58) The Singapore dollar—U.S. dollar (S$/$) spot exchange rate is S$1.60/$, the Canadian dollar—U.S. dollar (CD/$) spot rate is CD1.33/$ and the S$/CD1.15. Determine the triangular arbitrage profit that is possible if you have $1,000,000.

  1. A) $44,063 profit
  2. B) $46,093 loss
  3. C) No profit is possible
  4. D) $46,093 profit

 

59) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.50 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.25 how can you make money?

  1. A) No arbitrage is possible.
  2. B) Buy euro at $1.50/€, buy £ at €1.25/£, sell £ at $2/£.
  3. C) Buy £ $2/£, buy € at €1.25/£, sell € at $1.50/€.
  4. D) none of the options

 

60) Market microstructure refers to

  1. A) the basic mechanics of how a marketplace operates.
  2. B) the basics of how to make small (micro-sized) currency trades.
  3. C) how macroeconomic variables such as GDP and inflation are determined.
  4. D) none of the options

61) A recent survey of U.S. foreign exchange traders measured traders’ perceptions about how fast news events that cause movements in exchange rates actually change the exchange rate. The survey respondents claim that the bulk of the adjustment to economic announcements regarding unemployment, trade deficits, inflation, GDP, and the Federal funds rate takes place within

  1. A) ten seconds.
  2. B) one minute.
  3. C) five minutes.
  4. D) one hour.

 

62) The forward price

  1. A) may be higher than the spot price.
  2. B) may be the same as the spot price.
  3. C) may be less than the spot price.
  4. D) all of the options

 

63) Relative to the spot price, the forward price is

  1. A) usually less than the spot price.
  2. B) usually more than the spot price.
  3. C) usually equal to the spot price.
  4. D) usually less than or more than the spot price more often than it is equal to the spot price.

 

 

64) For a U.S. trader working in American quotes, if the forward price is higher than the spot price

  1. A) the currency is trading at a premium in the forward market.
  2. B) the currency is trading at a discount in the forward market.
  3. C) then you should buy at the spot, hold on to it and sell at the forward—it’s a built-in arbitrage.
  4. D) All of the options—it really depends if you’re talking American or European quotes.

 

65) The forward market

  1. A) involves contracting today for the future purchase of sale of foreign exchange at the spot rate that will prevail at the maturity of the contract.
  2. B) involves contracting today for the future purchase of sale of foreign exchange at a price agreed upon today.
  3. C) involves contracting today for the right but not obligation to the future purchase of sale of foreign exchange at a price agreed upon today.
  4. D) none of the options

66) The $/CD spot bid-ask rates are $0.7560–$0.7625. The 3-month forward points are 12–16. Determine the $/CD 3-month forward bid-ask rates.

  1. A) $0.7548–$0.7609
  2. B) $0.7572–$0.7641
  3. C) $0.7512–$0.7616
  4. D) Cannot be determined with the information given.

 

 

67) Restate the following one-, three-, and six-month outright forward American term bid-ask quotes in forward points:

 

S($/SFr) = 0.8500 − 0.8505
F1($/SFr) = 0.8505 − 0.8505
F3($/SFr) = 0.8510 − 0.8520
F6($/SFr) = 0.8515 − 0.8530
  1. A)
  Forward Point Quotations
One-Month 05-05
Three-Month 10-15
Six-Month 15-25
  1. B)
  Forward Point Quotations
One-Month 05-05
Three-Month 05-10
Six-Month 05-10
  1. C)
  Forward Point Quotations
One-Month 00-05
Three-Month 05-10
Six-Month 05-10
  1. D) none of the options

 

68) If one has agreed to buy a foreign exchange forward,

  1. A) you have a short position in the forward contract.
  2. B) you have a long position in the forward contract.
  3. C) until the exchange rate moves, you haven’t made money, so you’re neither short nor long.
  4. D) you have a long position in the spot market.

69) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a short position on €1,000. At maturity, the spot exchange rate is $1.60/€. How much have you made or lost?

  1. A) Lost $100
  2. B) Made €100
  3. C) Lost $50
  4. D) Made $150

 

 

70) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.52/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market?

  1. A) Take a long position in a forward contract on €1,000,000 at $1.50/€.
  2. B) Take a short position in a forward contract on €1,000,000 at $1.50/€.
  3. C) Buy euro today at the spot rate, sell them forward.
  4. D) Sell euro today at the spot rate, buy them forward.

 

71) The current spot exchange rate is $1.45/€ and the three-month forward rate is $1.55/€. Based upon your economic forecast, you are pretty confident that the spot exchange rate will be $1.50/€ in three months. Assume that you would like to buy or sell €100,000. What actions would you take to speculate in the forward market? How much will you make if your prediction is correct?

  1. A) Take a short position in a forward. If you’re right you will make $15,000.
  2. B) Take a long position in a forward contract on euro. If you’re right you will make $5,000.
  3. C) Take a short position in a forward contract on euro. If you’re right you will make $5,000.
  4. D) Take a long position in a forward contract on euro. If you’re right you will make $15,000.

 

72) Consider a trader who takes a long position in a six-month forward contract on the euro. The forward rate is $1.75 = €1.00; the contract size is €62,500. At the maturity of the contract the spot exchange rate is $1.65 = €1.00.

  1. A) The trader has lost $625.
  2. B) The trader has lost $6,250.
  3. C) The trader has made $6,250.
  4. D) The trader has lost $66,287.88.

73) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?

  1. A) Sell €1,000,000 forward for $1.50/€.
  2. B) Buy €1,000,000 forward for $1.50/€.
  3. C) Wait three months, if your forecast is correct buy €1,000,000 at $1.52/€.
  4. D) Buy €1,000,000 today at $1.55/€; wait three months, if your forecast is correct sell €1,000,000 at $1.62/€.

 

74) The current spot exchange rate is $1.50/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?

  1. A) Sell €1,000,000 forward for $1.50/€.
  2. B) Buy €1,000,000 forward for $1.55/€.
  3. C) Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€.
  4. D) Buy €1,000,000 today at $1.50/€; wait three months, if your forecast is correct sell €1,000,000 at $1.62/€.

 

 

 

75) Which of the following are correct?

  1. A) (j / k) =
  2. B) (j / k) =

C)(k / j) =

D)all of the options

76) Which of the following are correct?

  1. A) (j / k) =

B)(j / k) =

C)(k / j) =

D)all of the options

 

77) Which of the following are correct?

  1. A) (j / k) =

B)(j / k) =

C)(j / k) =

D)all of the options

 

 

78) Which of the following are correct?

  1. A) (k / j) =

B)(k / j) =

C)(k / j) =

  1. D) all of the options

 

79) When a currency trades at a premium in the forward market

  1. A) the exchange rate is more than one dollar (e.g., €1.00 = $1.28).
  2. B) the exchange rate is less than one dollar.
  3. C) the forward rate is less than the spot rate.
  4. D) the forward rate is more than the spot rate.

80) When a currency trades at a discount in the forward market

  1. A) the forward rate is less than the spot rate.
  2. B) the forward rate is more than the spot rate.
  3. C) the forward exchange rate is less than one dollar (e.g. €1.00 = $0.928).
  4. D) the exchange rate is less than it was yesterday.

 

81) The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/$. The forward premium (discount) is

  1. A) the dollar trading at an 8% premium to the Swiss franc for delivery in 180 days.
  2. B) the dollar trading at a 4% premium to the Swiss franc for delivery in 180 days.
  3. C) the dollar trading at an 8% discount to the Swiss franc for delivery in 180 days.
  4. D) the dollar trading at a 4% discount to the Swiss franc for delivery in 180 days.

 

82) The €/$ spot exchange rate is $1.50/€ and the 120 day forward exchange rate is 1.45/€. The forward premium (discount) is

  1. A) the dollar trading at an 8% premium to the euro for delivery in 120 days.
  2. B) the dollar trading at a 5% premium to the Swiss franc for delivery in 120 days.
  3. C) the dollar trading at a 10% discount to the euro for delivery in 120 days.
  4. D) the dollar trading at a 5% discount to the euro for delivery in 120 days.

 

83) The €/$ spot exchange rate is $1.50/€ and the 90-day forward premium is 10 percent. Find the 90-day forward price.

  1. A) $1.65/€
  2. B) $1.50375/€
  3. C) $1.9125/€
  4. D) none of the options

 

 

84) The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward premium is 8 percent. What is the outright 180 day forward exchange rate?

  1. A) SF1.30/$
  2. B) SF1.35/$
  3. C) SF6.25/$
  4. D) none of the options

 

85) The SF/$ 180-day forward exchange rate is SF1.30/$ and the 180 day forward premium is 8 percent. What is the outright spot exchange rate?

  1. A) SF1.30/$
  2. B) SF1.35/$
  3. C) SF1.25/$
  4. D) none of the options

86) Consider the following spot and forward rate quotations for the Swiss franc.

 

S($/SFr) = 0.85

F1($/SFr) = 0.86

F2($/SFr) = 0.87

F3($/SFr) =0.88

 

Which of the following is true?

  1. A) The Swiss franc is definitely going to be worth more dollars in six months.
  2. B) The Swiss franc is probably going to be worth less in dollars in six months.
  3. C) The Swiss franc is trading at a forward discount.
  4. D) The Swiss franc is trading at a forward premium.

 

87) Consider the following spot and forward rate quotations for the Swiss franc.

 

S($/SFr) = 0.85

F1($/SFr) = 0.86

F2($/SFr) = 0.87

F3($/SFr) =0.88

 

Calculate the 3-month forward premium in American terms. Assume 30-360 pricing convention.

  1. A) 0.353.
  2. B) 0.4235.
  3. C) 0.1364.
  4. D) 0.1412.

 

88) Swap transactions

  1. A) involve the simultaneous sale (or purchase) of spot foreign exchange against a forward purchase (or sale) of approximately an equal amount of the foreign currency.
  2. B) account for about half of Interbank FX trading.
  3. C) involve trades of one foreign currency for another without going through the U.S. dollar.
  4. D) all of the options

 

89) As a rule, when the interest rate of the foreign currency is greater than the interest rate of the quoting currency,

  1. A) the outright forward rate is less than the spot exchange rate.
  2. B) the outright forward rate is more than the spot exchange rate.
  3. C) the currency will trade at a premium in the forward contract.
  4. D) none of the options

90) Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask forward prices in terms of forward points. This is convenient because

  1. A) forward points may change faster than spot and forward quotes.
  2. B) forward points may remain constant for long periods of time, even if the spot rates change frequently.
  3. C) in swap transactions where the trader is attempting to minimize currency exposure, the actual spot and outright forward rates are often of no consequence.
  4. D) forward points may remain constant for long periods of time, even if the spot rates change frequently, and in swap transactions where the trader is attempting to minimize currency exposure, the actual spot and outright forward rates are often of no consequence.

 

91) Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask forward prices in terms of forward points. Complete the following table:

 

Spot Forward Point Quotations 1.9072-1.9077
One-month 32-30  
Three-month 57-54 1.9015-1.9023
Six-month 145-138 1.8927-1.8939
  1. A) 1.9040–1.9047
  2. B) 1.9042–1.9049
  3. C) 1.9032–1.9030
  4. D) none of the options

 

92) An exchange-traded fund (ETF) is

  1. A) the same thing as a mutual fund.
  2. B) a portfolio of financial assets in which shares representing fractional ownership of the fund are sold and redeemed by the fund sponsor.
  3. C) a portfolio of financial assets in which shares representing fractional ownership of the fund trade on an organized exchange.
  4. D) none of the options

 

93) The largest and most active financial market in the world is

  1. A) the Fleet Street Exchange in London.
  2. B) the NYSE in New York.
  3. C) the FX market.
  4. D) none of the options

 

94) Nondollar currency transactions

  1. A) are priced by looking at the price that must exist to eliminate arbitrage.
  2. B) allow for triangular arbitrage opportunities to keep the currency dealers employed.
  3. C) are only for poor people who don’t have dollars.
  4. D) none of the options

 

95) Consider the balance sheets of Bank A and Bank B. Bank A is in Milan, Bank B is in New York. The current exchange rate is €1.00 = $1.25. Show the correct balances in each account if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $125,000 using its correspondent relationship with Bank B.

 

Bank A (Milan) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
€ deposit at B € 500             B’s Eurodollar deposit $ 900          
$ deposit at B $ 800             B’s € deposit € 220          
Cash in the Vault € 200     € 200     Other Liabilities € 300     € 300  
Other Assets € 400     € 400     Owners Equity € 500     € 500  
Total Assets @ €1.00 = $1.25 € 1,740             Total Liabilities & Equity @ €1.00 = $1.25 € 1,740          

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A € 900             A’s euro deposit $ 500          
€ deposit at A $ 220             A’s $ deposit € 800          
Cash in the Vault € 200     € 200     Other Liabilities € 200     € 200  
Other Assets € 600     € 600     Owners Equity € 350     € 350  
Total Assets @ €1.00 = $1.25 € 1,975             Total Liabilities & Equity @ €1.00 = $1.25 € 1,975          

 

 

96) Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New York. The current exchange rate is £1.00 = $2.00. Show the correct balances in each account if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

 

Bank A (London) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
£ deposit at B £ 500             B’s Eurodollar deposit $ 850          
$ deposit at B $ 1,000             B’s £ deposit £ 100          
Cash in the Vault £ 200             Other Liabilities £ 300          
Other Assets £ 400             Owners Equity £ 775          
Total Assets £ 1,600             Total Liabilities & Equity £ 1,600          

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A $ 850             A’s £ deposit £ 500          
£ deposit at A £ 100             A’s $ deposit $ 1,000          
Cash in the Vault $ 200             Other Liabilities $ 200          
Other Assets $ 1,000             Owners Equity $ 50          
Total Assets $ 2,250             Total Liabilities & Equity $ 2,250          

 

 

97) Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New York. The current exchange rate is & pound;1.00 = $2.00. Show the correct balances in each account if a currency trader employed at Bank A buys £50,000 from a currency trader at Bank B for $100,000 using its correspondent relationship with Bank B.

 

Bank A (London) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
£ deposit at B £ 500             B’s Eurodollar deposit $ 850          
$ deposit at B $ 1,000             B’s £ deposit £ 100          
Cash in the Vault £ 200             Other Liabilities £ 300          
Other Assets £ 400             Owners Equity £ 775          
Total Assets £ 1,600             Total Liabilities & Equity £ 1,600          

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A $ 850             A’s £ deposit £ 500          
£ deposit at A £ 100             A’s $ deposit $ 1,000          
Cash in the Vault $ 200             Other Liabilities $ 200          
Other Assets $ 1,000             Owners Equity $ 50          
Total Assets $ 2,250             Total Liabilities & Equity $ 2,250          

 

 

98)

Country USD equiv. Currency per USD
  Tuesday Monday Tuesday Monday
U.K. (Pound) 1.7368 1.7424 0.5758 0.5739
1 Month Forward 1.7369 1.7425 0.5757 0.5739
3 Months Forward 1.738 1.7434 0.5754 0.5736
6 Months Forward 1.7409 1.7461 0.5744 0.5727
Canada (Dollar) 0.8667 0.8653 1.1538 1.1557
1 Month Forward 0.8674 0.866 1.1529 1.1547
3 Months Forward 0.8688 0.8674 1.151 1.1529
6 Months Forward 0.8708 0.8693 1.1484 1.1504
Japan (Yen) 0.008518 0.008495 117.3985 117.7163
1 Month Forward 0.008548 0.008525 116.0631 117.3021
3 Months Forward 0.008616 0.008593 116.0631 116.3738
6 Months Forward 0.008724 0.0087 114.6263 114.9425
Switzerland (Franc) 0.7648 0.7652 1.3075 1.3068
1 Month Forward 0.767 0.7674 1.3038 1.3031
3 Months Forward 0.7718 0.7722 1.2957 1.295
6 Months Forward 0.7791 0.7794 1.2835 1.283
Euro 1.2000 1.1906 0.8333 0.8399

 

Using the table, what is the Canadian dollar–euro spot cross-exchange rate?

 

99)

Country USD equiv. Currency per USD
  Tuesday Monday Tuesday Monday
U.K. (Pound) 1.7368 1.7424 0.5758 0.5739
1 Month Forward 1.7369 1.7425 0.5757 0.5739
3 Months Forward 1.738 1.7434 0.5754 0.5736
6 Months Forward 1.7409 1.7461 0.5744 0.5727
Canada (Dollar) 0.8667 0.8653 1.1538 1.1557
1 Month Forward 0.8674 0.866 1.1529 1.1547
3 Months Forward 0.8688 0.8674 1.151 1.1529
6 Months Forward 0.8708 0.8693 1.1484 1.1504
Japan (Yen) 0.008518 0.008495 117.3985 117.7163
1 Month Forward 0.008548 0.008525 116.0631 117.3021
3 Months Forward 0.008616 0.008593 116.0631 116.3738
6 Months Forward 0.008724 0.0087 114.6263 114.9425
Switzerland (Franc) 0.7648 0.7652 1.3075 1.3068
1 Month Forward 0.767 0.7674 1.3038 1.3031
3 Months Forward 0.7718 0.7722 1.2957 1.295
6 Months Forward 0.7791 0.7794 1.2835 1.283
Euro 1.2000 1.1906 0.8333 0.8399

 

Using the table what is the 6-month forward pound–yen cross-exchange rate?

 

100)

Country USD equiv. Currency per USD
  Tuesday Monday Tuesday Monday
U.K. (Pound) 1.7368 1.7424 0.5758 0.5739
1 Month Forward 1.7369 1.7425 0.5757 0.5739
3 Months Forward 1.738 1.7434 0.5754 0.5736
6 Months Forward 1.7409 1.7461 0.5744 0.5727
Canada (Dollar) 0.8667 0.8653 1.1538 1.1557
1 Month Forward 0.8674 0.866 1.1529 1.1547
3 Months Forward 0.8688 0.8674 1.151 1.1529
6 Months Forward 0.8708 0.8693 1.1484 1.1504
Japan (Yen) 0.008518 0.008495 117.3985 117.7163
1 Month Forward 0.008548 0.008525 116.0631 117.3021
3 Months Forward 0.008616 0.008593 116.0631 116.3738
6 Months Forward 0.008724 0.0087 114.6263 114.9425
Switzerland (Franc) 0.7648 0.7652 1.3075 1.3068
1 Month Forward 0.767 0.7674 1.3038 1.3031
3 Months Forward 0.7718 0.7722 1.2957 1.295
6 Months Forward 0.7791 0.7794 1.2835 1.283
Euro 1.2000 1.1906 0.8333 0.8399

 

Using the table, what is 3-month forward premium or discount (expressed as an annual percentage rate) for the British pound in terms of U.S. dollars?

 

International Financial Management, 8e (Eun)

Chapter 5   The Market for Foreign Exchange

 

1)The world’s largest foreign exchange trading center is

  1. A) New York.
  2. B) Tokyo.
  3. C) London.
  4. D) Hong Kong.

 

Answer:  C

Topic:  Function and Structure of the FX Market

Accessibility:  Keyboard Navigation

 

2) On average, worldwide daily trading of foreign exchange is closest to

A)$100 million.

  1. B) $15 billion.
  2. C) $504 billion.
  3. D) $5 trillion.

 

Answer:  D

Topic:  Function and Structure of the FX Market

Accessibility:  Keyboard Navigation

 

3) The foreign exchange market closes

  1. A) never.
  2. B) 4:00 p.m. EST (New York time).
  3. C) 4:00 p.m. GMT (London time).
  4. D) 4:00 p.m. (Tokyo time).

 

Answer:  A

Topic:  Function and Structure of the FX Market

Accessibility:  Keyboard Navigation

 

4) Most foreign exchange transactions are for

  1. A) intervention by central banks.
  2. B) interbank trades between international banks or nonbank dealers.
  3. C) retail trade.
  4. D) purchase of hard currencies.

 

Answer:  B

Topic:  FX Market Participants

Accessibility:  Keyboard Navigation

 

 

5) The difference between a broker and a dealer is

  1. A) dealers sell drugs; brokers sell houses.
  2. B) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy and sell from their inventory.
  3. C) brokers transact in stocks and bonds; currency is bought and sold through dealers.
  4. D) none of the options

 

Answer:  B

Topic:  FX Market Participants

Accessibility:  Keyboard Navigation

 

6) Most interbank trades are

  1. A) speculative or arbitrage transactions.
  2. B) simple order processing for the retail client.
  3. C) overnight loans from one bank to another.
  4. D) brokered by dealers.

 

Answer:  A

Topic:  FX Market Participants

Accessibility:  Keyboard Navigation

 

7) At the wholesale level,

  1. A) most trading takes place OTC between individuals on the floor of the exchange.
  2. B) most trading takes place over the phone.
  3. C) most trading flows over Reuters and EBS platforms.
  4. D) most trading flows through specialized “broking” firms.

 

Answer:  C

Topic:  FX Market Participants

Accessibility:  Keyboard Navigation

8) Intervention in the foreign exchange market is the process of

  1. A) a central bank requiring the commercial banks of that country to trade at a set price level.
  2. B) commercial banks in different countries coordinating efforts in order to stabilize one or more currencies.
  3. C) a central bank buying or selling its currency in order to influence its value.
  4. D) the government of a country prohibiting transactions in one or more currencies.

 

Answer:  C

Topic:  FX Market Participants

Accessibility:  Keyboard Navigation

 

 

 

9) The standard size foreign exchange transactions are for

  1. A) $10 million USD.
  2. B) $1 million USD.
  3. C) €1 million.
  4. D) none of the options

 

Answer: A

Topic:  FX Market Participants

 

10) Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in euros, at a cost of €512,100. The U.S. importer will contact his U.S. bank (where of course he has an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank quotes as €1.0242/$1.00. The importer accepts this price, so his bank will ________ the importer’s account in the amount of ________.

  1. A) debit; $500,000
  2. B) debit; $524,492
  3. C) credit; $500,000
  4. D) debit; €512,100

 

Answer:  A

Explanation:  512,100/1.0242 = 500,000

Topic:  Correspondent Banking Relationships

11) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A’s correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

  1. A) Bank A’s dollar-denominated account at B will fall by $90,000.
  2. B) Bank B’s dollar-denominated account at A will rise by $90,000.
  3. C) Bank A’s pound-denominated account at B will rise by £45,000.
  4. D) Bank B’s pound-denominated account at A will fall by £45,000.
  5. E) all of the options

 

Answer:  E

Topic:  Correspondent Banking Relationships

 

12) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A’s correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

  1. A) Bank A’s dollar-denominated account at B will rise by $90,000.
  2. B) Bank B’s dollar-denominated account at A will fall by $90,000.
  3. C) Bank A’s pound-denominated account at B will rise by £45,000.
  4. D) Bank B’s pound-denominated account at A will rise by £45,000.

 

Answer:  C

Topic:  Correspondent Banking Relationships

 

 

 

13) The current exchange rate is €1.00 = $1.50. Compute the correct balances in Bank A’s correspondent account(s) with Bank B if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $150,000 using its correspondent relationship with Bank B.

  1. A) Bank A’s dollar-denominated account at B will fall by $150,000.
  2. B) Bank B’s dollar-denominated account at A will fall by $150,000.
  3. C) Bank A’s pound-denominated account at B will fall by €100,000.
  4. D) Bank B’s pound-denominated account at A will rise by €100,000.

 

Answer:  A

Topic:  Correspondent Banking Relationships

14) The spot market

  1. A) involves the almost-immediate purchase or sale of foreign exchange.
  2. B) involves the sale of futures, forwards, and options on foreign exchange.
  3. C) takes place only on the floor of a physical exchange.
  4. D) all of the options

 

Answer:  A

Topic:  The Spot Market

Accessibility:  Keyboard Navigation

 

15) Spot foreign exchange trading

  1. A) accounted for about 5 percent of all foreign exchange trades in 2013.
  2. B) accounted for about 20 percent of all foreign exchange trades in 2013.
  3. C) accounted for about 40 percent of all foreign exchange trades in 2013.
  4. D) accounted for about 70 percent of all foreign exchange trades in 2013.

 

Answer:  C

Topic:  The Spot Market

Accessibility:  Keyboard Navigation

 

 

 

16)

Country U.S. $ equiv. Currency per U.S. $  
  Tuesday Monday Tuesday Monday
Britain (Pound) £62,500 1.6000 1.6100 0.6250 0.6211
1 Month Forward 1.6100 1.6300 0.6211 0.6173
3 Months Forward 1.6300 1.6600 0.6173 0.6024
6 Months Forward 1.6600 1.7200 0.6024 0.5814
12 Months Forward 1.7200 1.8000 0.5814 0.5556

 

Using the table shown, what is the most current spot exchange rate shown for British pounds? Use a direct quote from a U.S. perspective.

  1. A) $1.61 = £1.00
  2. B) $1.60 = £1.00
  3. C) $1.00 = £0.625
  4. D) $1.72 = £1.00

 

Answer:  B

Topic:  Spot Rate Quotations

17) Suppose that the current exchange rate is €0.80 = $1.00. The direct quote, from the U.S. perspective is

  1. A) €1.00 = $1.25.
  2. B) €0.80 = $1.00.
  3. C) £1.00 = $1.80.
  4. D) none of the options

 

Answer:  A

Explanation:  1/0.8 = 1.25

Topic:  Spot Rate Quotations

 

18) Suppose that the current exchange rate is €1.00 = $1.60. The indirect quote, from the U.S. perspective is

  1. A) €1.00 = $1.60.
  2. B) €0.6250 = $1.00.
  3. C) €1.60 = $1.00.
  4. D) none of the options

 

Answer:  B

Explanation:  1/1.6 = 0.625

Topic:  Spot Rate Quotations

 

 

 

19) Suppose that the current exchange rate is £1.00 = $2.00. The indirect quote, from the U.S. perspective is

  1. A) £1.00 = $2.00.
  2. B) £1.00 = $0.50.
  3. C) £0.50 = $1.00.
  4. D) none of the options

 

Answer:  C

Explanation:  1/2 = 0.5

Topic:  Spot Rate Quotations

 

20) Indirect exchange rate quotations from the U.S. perspective are

  1. A) the price of one unit of the foreign currency in terms of the U.S. dollar.
  2. B) the price of one U.S. dollar in the foreign currency.

 

Answer:  B

Topic:  Spot Rate Quotations

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21) It is common practice among currency traders worldwide to both price and trade currencies against the U.S. dollar. In fact, 2013 BIS statistics indicate that about ________ of currency trading in the world involves the U.S. dollar on one side of the transaction.

  1. A) 87 percent
  2. B) 75 percent
  3. C) 45 percent
  4. D) 15 percent

 

Answer:  A

Topic:  Spot Rate Quotations

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22) It is common practice among currency traders worldwide to both price and trade currencies against the U.S. dollar. Consider a currency dealer who makes a market in 5 currencies against the dollar. If he were to supply quotes for each currency in terms of all of the others, how many quotes would he have to provide?

  1. A) 36
  2. B) 30
  3. C) 60
  4. D) 120
  5. E) none of the options

 

Answer:  B

Explanation:  5 × 5 + 5 = 30 (Hint: You have to account for the five other currencies AND the US dollar.)

Topic:  Spot Rate Quotations

 

 

 

23) The bid price

  1. A) is the price that the dealer has just paid for something, his historical cost of the most recent trade.
  2. B) is the price that a dealer stands ready to pay.
  3. C) refers only to auctions like eBay, not over-the-counter transactions with dealers.
  4. D) is the price that a dealer stands ready to sell at.

 

Answer:  B

Topic:  The Bid-Ask Spread

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24) Suppose the spot ask exchange rate, Sa($/£), is $1.90 = £1.00 and the spot bid exchange rate, Sb($/£), is $1.89 = £1.00. If you were to buy $10,000,000 worth of British pounds and then sell them five minutes later, how much of your $10,000,000 would be “eaten” by the bid-ask spread?

  1. A) $1,000,000
  2. B) $52,910
  3. C) $100,000
  4. D) $52,632

 

Answer:  D

Explanation:  First, determine how many pounds can be purchased with the $10,000,000 under the ask rate. To do this, solve the following proportion for X:  = ($10,000,000 / X), which results in X = £5,263,157.89. Next, find out how many dollars you will receive if you sell your recently purchased pounds using the bid rate. Solve the proportion for X: = . You will receive $9,947,368.41. Finally, subtract this from your original $10,000,000 to find how much is lost from the bid-ask spread. The penalty is $52,631.58, which rounds to $52,632.

Topic:  The Bid-Ask Spread

 

25) If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and ask prices are

  1. A) €0.6667 and €0.6623.
  2. B) $1.51 and $1.50.
  3. C) €0.6623 and €0.6667.

D)cannot be determined with the information given.

 

Answer:  C

Explanation:  0.6623 = 1/1.51 and 0.6667 = 1/1.50

Topic:  The Bid-Ask Spread

 

 

 

26) In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.2519-$1.2523. The “big figure,” assumed to be known to all traders is ________.

  1. A) 1.2523
  2. B) 1
  3. C) 1.25
  4. D) 23

 

Answer:  C

Topic:  Spot FX Trading

27) In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.2519-$1.2523. The currency dealer would likely quote that as ________.

  1. A) 19-23
  2. B) 23-19
  3. C) 4 points
  4. D) none of the options

 

Answer:  A

Topic:  Spot FX Trading

 

28) In the Interbank market, the standard size of a trade among large banks in the major currencies is

  1. A) for the U.S.-dollar equivalent of $10,000,000,000.
  2. B) for the U.S.-dollar equivalent of $10,000,000.
  3. C) for the U.S.-dollar equivalent of $100,000.
  4. D) for the U.S.-dollar equivalent of $1,000.

 

Answer:  B

Topic:  Spot FX Trading

Accessibility:  Keyboard Navigation

 

29) A dealer in British pounds who thinks that the pound is about to appreciate

  1. A) may want to widen his bid-ask spread by raising his ask price.
  2. B) may want to lower his bid price.
  3. C) may want to lower his ask price.
  4. D) none of the options

 

Answer:  D

Topic:  Spot FX Trading

Accessibility:  Keyboard Navigation

 

 

 

30) A dealer in British pounds who thinks that the pound is about to depreciate

  1. A) may want to widen his bid-ask spread by raising his ask price and lowering his bid.
  2. B) may want to lower both his bid price and his ask price.
  3. C) may want to lower his ask price while raising his bid.
  4. D) none of the options

 

Answer:  B

Topic:  Spot FX Trading

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31) A dealer in pounds who thinks that the exchange rate is about to increase in volatility

  1. A) may want to widen his bid-ask spread.
  2. B) may want to decrease his bid-ask spread.
  3. C) may want to lower his ask price.
  4. D) none of the options

 

Answer:  A

Topic:  Spot FX Trading

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32)

Country U.S. $ equiv. Currency per U.S. $  
  Tuesday Monday Tuesday Monday
Britain (Pound) £62,500 2.0000 1.9800 0.5000 0.5051
1 Month Forward 2.0100 1.9900 0.4975 0.5025
3 Months Forward 2.0200 2.0000 0.4950 0.5000
6 Months Forward 2.0300 2.0100 0.4926 0.4975
12 Months Forward 2.0400 2.0200 0.4902 0.4950
Euro £62,500 1.5000 1.4800 0.6667 0.6757
1 Month Forward 1.5100 1.4900 0.6623 0.6711
3 Months Forward 1.5200 1.5000 0.6579 0.6667
6 Months Forward 1.5300 1.5100 0.6536 0.6623
12 Months Forward 1.5400 1.5200 0.6494 0.6579

 

Using the table shown, what is the spot cross-exchange rate between pounds and euro?

  1. A) €1.00 = £0.75
  2. B) £1.33 = €1.00
  3. C) £1.00 = €0.75
  4. D) none of the options

 

Answer:  A

Explanation:  S(£/€) = S($/€) / S($/£), or S(£/€) = 1.5/2 = £0.75.

Topic:  Cross-Exchange Rate Quotations

33) The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the euro-yen cross rate?

  1. A) €125 = ¥1.00
  2. B) €1.00 = ¥125
  3. C) €1.00 = ¥0.80
  4. D) none of the options

 

Answer:  A

Explanation:  S(€/¥) = S($/¥) / S($/€) = (1/100) / (1.25/1), or (1/100) × (1/1.25), = ¥125

Topic:  Cross-Exchange Rate Quotations

 

34) Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00. Calculate the euro-pound crossrate.

  1. A) £1 = €1.60
  2. B) £1 = €0.625
  3. C) £2.50 = €1
  4. D) £1 = €2.50

 

Answer:  A

Explanation:  S(€/£) = S($/£) / S($/€) = (2/1) / (1/1.25), or (2/1) × (1.25/1) = €1.60

Topic:  Cross-Exchange Rate Quotations

 

35) The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$. The AUD/SF cross exchange rate is ________.

  1. A) 0.7813
  2. B) 2.0000
  3. C) 1.2800
  4. D) 0.3500

 

Answer:  C

Explanation:  S(AUD/SF) = S($/SF) / S($/AUD) = (1/1.25) / (1/1.6), or (1/1.25) × (1.6/1) = AUD 1.28

Topic:  Cross-Exchange Rate Quotations

 

36) Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00. Calculate the euro-pound exchange rate.

  1. A) €1.3333 = £1.00
  2. B) £1.3333 = €1.00
  3. C) €3.00 = £1
  4. D) €1.25 = £1.00

 

Answer:  A

Explanation:  S(€/£) = S($/£) / S($/€) = (2/1) / (1.50/1), or (2/1) × (1/1.50) = €1.3333

Topic:  Cross-Exchange Rate Quotations

 

 

37) Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00. Calculate the euro-pound exchange rate.

  1. A) €1.3333 = £1.00
  2. B) £1.3333 = €1.00
  3. C) €3.00 = £1
  4. D) €1.25 = £1.00

 

Answer:  D

Explanation:  S(€/£) = S($/£) / S($/€) = (2/1) / (1.6/1), or (2/1) × (1/1.6) = €1.25

Topic:  Cross-Exchange Rate Quotations

 

38) Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00. Calculate the euro-yen exchange rate.

  1. A) ¥133.33 = €1.00
  2. B) ¥1.00 = €180
  3. C) ¥80 = €1.00
  4. D) €1 = £2.50

 

Answer:  B

Explanation:  S(€/¥) = S($/¥) / S($/€) = (1/120) / (1.50/1), or (1/120) × (1/1.50) = €180

Topic:  Cross-Exchange Rate Quotations

 

39) Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90. Calculate the euro-pound exchange rate.

  1. A) €1.3103 = £1.00
  2. B) £1.3333 = €1.00
  3. C) €2.00 = £1
  4. D) €3 = £1

 

Answer:  A

Explanation:  S(€/£) = S($/£) / S($/€) = (1.90/1) / (1.45/1), or (1.90/1) × (1/1.45) = €1.3103

Topic:  Cross-Exchange Rate Quotations

 

 

40)

  USD equivalent
Country BID ASK
Switzerland (Franc) CHF 0.7648 0.7652
Euro € 1.4000 1.4200

 

What is the BID cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Swiss francs.

  1. A) €0.5386/CHF
  2. B) €0.5389/CHF
  3. C) €0.5463/CHF
  4. D) €0.5466/CHF

 

Answer:  A

Explanation:  0.7648 / 1.42 = €0.5386

Topic:  Cross-Exchange Rate Quotations

 

41)

  USD equivalent
Country BID ASK
Switzerland (Franc) CHF 0.7648 0.7652
Euro € 1.4000 1.4200

 

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

  1. A) €0.5386/CHF
  2. B) €0.5389/CHF
  3. C) €0.5463/CHF
  4. D) €0.5466/CHF

 

Answer:  D

Explanation:  0.7652 / 1.4 = €0.5466

Topic:  Cross-Exchange Rate Quotations

42) Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.

  1. A) €1.25/£1.00
  2. B) $1.25/£1.00
  3. C) £1.25/€1.00
  4. D) €0.80/£1.00

 

Answer:  A

Explanation:  S(€/£) = S($/£) / S($/€) = 1.6 / 2 = €1.25

Topic:  Cross-Exchange Rate Quotations

 

43)

  USD equivalent
Country BID ASK
Canada (Dollar) 0.8653 0.8667
Euro € 1.4000 1.4200

 

What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Canadian dollars.

  1. A) €0.6094/CAD
  2. B) €0.6104/CAD
  3. C) €0.6181/CAD
  4. D) €0.6191/CAD

 

Answer:  A

Explanation:  0.8653 / 1.42 = €0.6094

Topic:  Cross-Exchange Rate Quotations

44)

  USD equivalent
Country BID ASK
Canada (Dollar) 0.8653 0.8667
Euro € 1.4000 1.4200

 

What is the ASK cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Canadian dollars.

  1. A) €0.6094/CAD
  2. B) €0.6104/CAD
  3. C) €0.6181/CAD
  4. D) €0.6191/CAD

 

Answer:  D

Explanation:  0.8667 / 1.4 = €0.6191

Topic:  Cross-Exchange Rate Quotations

 

45) Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120.

  1. A) €192/¥1.00
  2. B) €1.92/¥100
  3. C) €1.25/¥1.00
  4. D) €1.00/¥1.92

 

Answer:  A

Explanation:  S(€/¥) = S($/¥) / S($/€) = (1/120) / (1.60/1), or (1/120) − (1/1.60) = €192

Topic:  Cross-Exchange Rate Quotations

 

46) The euro-pound cross exchange rate can be computed as:

  1. A) S(€/£) = S($/£) × S(€/$)
  2. B) S(€/£) =
  3. C) S(€/£) =
  4. D) all of the options

 

Answer:  D

Topic:  Alternative Expressions for the Cross-Exchange Rate

47) Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.

  1. A) In dealer jargon, this is a currency against currency trade.
  2. B) The bank will frequently handle such a trade by selling British pounds for U.S. dollars and then buying Swiss francs with U.S. dollars.
  3. C) The bank would typically sell the British pounds directly for Swiss francs.
  4. D) In dealer jargon, this is a currency against currency trade, and the bank will frequently handle such a trade by selling British pounds for U.S. dollars and then buying Swiss francs with U.S. dollars.

 

Answer:  D

Topic:  The Cross-Rate Trading Desk

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48) Including the transaction costs of the bid-ask spread, the euro-pound cross exchange rate for a customer who wants to sell euro and buy pounds can be computed as

  1. A) Sb(£/€) = Sb($/€) × Sb(£/$)
  2. B) Sa(€/£) = Sa(€/$) × Sa($/£)
  3. C) Sb(€/£) = Sb($/€) ×
  4. D) all of the options

 

Answer:  D

Topic:  The Cross-Rate Trading Desk

 

 

 

49) Suppose a bank customer with €1,000,000 wishes to trade out of euro and into Japanese yen. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120. How many yen will the customer get?

  1. A) ¥192,000,000
  2. B) ¥5,208,333
  3. C) ¥75,000,000
  4. D) ¥5,208.33

 

Answer:  A

Explanation:  First, determine the yen-euro cross rate. S(¥/€) = S($/€) / S($/¥) = (1.6/1) / (1/120), or (1.6/1) × (120/1) = ¥192. Thus, one euro is equivalent to ¥192. Next, set up a proportion to determine how many yen the customer will get for €10,000,000. Solve for X in the following proportion: (¥192 / €1) = (X / €1,000,000). X = ¥192,000,000.

Topic:  The Cross-Rate Trading Desk

50)

  American Terms   European Terms  
Bank Quotations Bid   Ask   Bid   Ask  
British pounds $ 1.9712     $ 1.9717     £ 0.5072     £ 0.5073  
Euros $ 1.4738     $ 1.4742     € 0.6783     € 0.6785  

 

Using the table above, what is the bid price of pounds in terms of euro?

  1. A) €1.3371/£
  2. B) €1.3378/£
  3. C) £0.7475/€
  4. D) £0.7479/€

 

Answer:  A

Explanation:  1.9712 / 1.4742 = €1.3371

Topic:  The Cross-Rate Trading Desk

 

51)

  American Terms   European Terms  
Bank Quotations Bid   Ask   Bid   Ask  
British pounds $ 1.9712     $ 1.9717     £ 0.5072     £ 0.5073  
Euros $ 1.4738     $ 1.4742     € 0.6783     € 0.6785  

 

Using the table above, what is the ask price of pounds in terms of euro?

  1. A) €1.3371/£
  2. B) €1.3378/£
  3. C) £0.7475/€
  4. D) £0.7479/€

 

Answer:  B

Explanation:  1.9717 / 1.4738 = €1.3378

Topic:  The Cross-Rate Trading Desk

52)

  American Terms   European Terms  
Bank Quotations Bid   Ask   Bid   Ask  
British pounds $ 1.9712     $ 1.9717     £ 0.5072     £ 0.5073  
Euros $ 1.4738     $ 1.4742     € 0.6783     € 0.6785  

 

Using the table above, what is the bid price of euro in terms of pounds?

  1. A) €1.3371/£
  2. B) €1.3378/£
  3. C) £0.7475/€
  4. D) £0.7479/€

 

Answer:  C

Explanation:  1.4738 / 1.9717 = £0.7475

Topic:  The Cross-Rate Trading Desk

 

53)

  American Terms   European Terms  
Bank Quotations Bid   Ask   Bid   Ask  
British pounds $ 1.9712     $ 1.9717     £ 0.5072     £ 0.5073  
Euros $ 1.4738     $ 1.4742     € 0.6783     € 0.6785  

 

Using the table above, what is the ask price of euro in terms of pounds?

  1. A) €1.3371/£
  2. B) €1.3378/£
  3. C) £0.7475/€
  4. D) £0.7479/€

 

Answer:  D

Explanation:  1.4742 / 1.97112 = £0.7479

Topic:  The Cross-Rate Trading Desk

 

54) Suppose you observe the following exchange rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00. Starting with $1,000,000, how can you make money?

  1. A) Exchange $1m for £625,000 at £1 = $1.60. Buy €1,250,000 at €2 = £1.00; trade for $1,062,500 at €1 = $.85.
  2. B) Start with dollars, exchange for euros at €1 = $.85; exchange for pounds at €2.00 = £1.00; exchange for dollars at £1 = $1.60.
  3. C) Start with euros; exchange for pounds; exchange for dollars; exchange for euros.
  4. D) No arbitrage profit is possible.

 

Answer:  A

Topic:  Triangular Arbitrage

 

 

55) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.50, how much money can an astute trader make?

  1. A) No arbitrage is possible
  2. B) $1,160,000
  3. C) $500,000
  4. D) $250,000

 

Answer:  A

Topic:  Triangular Arbitrage

 

56) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.20 how much money can an astute trader make?

  1. A) No arbitrage is possible
  2. B) $1,160,000
  3. C) $41,667
  4. D) $40,000

 

Answer:  C

Explanation:  First, calculate the true euro-pound cross rate. S(€/£) =S($/£) / S($/€) = (2/1) / (1.6/1), or (2/1) × (1/1.6) = €1.25. Thus, the bank is offering the pound at a discount of €0.05. Convert the $1,000,000 into euros by solving the following proportion for X: (1.6 / 1) = (1,000,000 / X). whereX = €625,000. If you use the bank’s cross rate of €1.20 per pound, you can convert the €625,000 into £520.833.33(625,000 / 1.2). Finally, convert the undervalued pounds back to dollars: (2 / 1) = (X / 520,833.33). You are left with X = $1,041,666. Now, subtract the original $1,000,000 and you are left with $41,667.

Topic:  Triangular Arbitrage

57) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.20 how can you make money?

  1. A) No arbitrage is possible
  2. B) Buy euro at $1.60/€, buy £ at €1.20/£, sell £ at $2/£
  3. C) Buy £ $2/£, buy € at €1.20/£, sell € at $1.60/€
  4. D) none of the options

 

Answer:  B

Explanation:  Calculate the actual cross rate. S(€/£) = S($/£) / S($/€) = (2 / 1.6) = €1.25. Thus, you now know that the euro is undervalued with respect to pounds under the cross rate offered by the bank, meaning you should buy the euro, convert to pounds, and finally convert back to dollars.

Topic:  Triangular Arbitrage

 

 

 

58) The Singapore dollar—U.S. dollar (S$/$) spot exchange rate is S$1.60/$, the Canadian dollar—U.S. dollar (CD/$) spot rate is CD1.33/$ and the S$/CD1.15. Determine the triangular arbitrage profit that is possible if you have $1,000,000.

  1. A) $44,063 profit
  2. B) $46,093 loss
  3. C) No profit is possible
  4. D) $46,093 profit

 

Answer:  D

Explanation:  The triangle should be in the form of USD to S$, then S$ to CD, and then back to USD. $1,000,000 (1.6) = S$ 1,600 000 / 1.15 = CD 1,391,304.35 / 1.33 = $1,046,093. To find the profit, you must subtract the initial $1,000,000 from $1,046,093, which leaves you with $46,093.

Topic:  Triangular Arbitrage

59) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.50 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.25 how can you make money?

  1. A) No arbitrage is possible.
  2. B) Buy euro at $1.50/€, buy £ at €1.25/£, sell £ at $2/£.
  3. C) Buy £ $2/£, buy € at €1.25/£, sell € at $1.50/€.
  4. D) none of the options

 

Answer:  B

Explanation:  Calculate the actual cross rate. S(€/£) = S($/£) / S($/€) = (2 / 1.5) = €1.33. Thus, you now know that the euro is undervalued with respect to pounds under the cross rate offered by the bank, meaning you should buy the euro, convert to pounds, and finally convert back to dollars.

Topic:  Triangular Arbitrage

 

60) Market microstructure refers to

  1. A) the basic mechanics of how a marketplace operates.
  2. B) the basics of how to make small (micro-sized) currency trades.
  3. C) how macroeconomic variables such as GDP and inflation are determined.
  4. D) none of the options

 

Answer:  A

Topic:  Spot Foreign Exchange Market Microstructure

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61) A recent survey of U.S. foreign exchange traders measured traders’ perceptions about how fast news events that cause movements in exchange rates actually change the exchange rate. The survey respondents claim that the bulk of the adjustment to economic announcements regarding unemployment, trade deficits, inflation, GDP, and the Federal funds rate takes place within

  1. A) ten seconds.
  2. B) one minute.
  3. C) five minutes.
  4. D) one hour.

 

Answer:  B

Topic:  Spot Foreign Exchange Market Microstructure

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62) The forward price

  1. A) may be higher than the spot price.
  2. B) may be the same as the spot price.
  3. C) may be less than the spot price.
  4. D) all of the options

 

Answer:  D

Topic:  The Forward Market

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63) Relative to the spot price, the forward price is

  1. A) usually less than the spot price.
  2. B) usually more than the spot price.
  3. C) usually equal to the spot price.
  4. D) usually less than or more than the spot price more often than it is equal to the spot price.

 

Answer:  D

Topic:  The Forward Market

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64) For a U.S. trader working in American quotes, if the forward price is higher than the spot price

  1. A) the currency is trading at a premium in the forward market.
  2. B) the currency is trading at a discount in the forward market.
  3. C) then you should buy at the spot, hold on to it and sell at the forward—it’s a built-in arbitrage.
  4. D) All of the options—it really depends if you’re talking American or European quotes.

 

Answer:  A

Topic:  The Forward Market

 

 

65) The forward market

  1. A) involves contracting today for the future purchase of sale of foreign exchange at the spot rate that will prevail at the maturity of the contract.
  2. B) involves contracting today for the future purchase of sale of foreign exchange at a price agreed upon today.
  3. C) involves contracting today for the right but not obligation to the future purchase of sale of foreign exchange at a price agreed upon today.
  4. D) none of the options

 

Answer:  B

Topic:  The Forward Market

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66) The $/CD spot bid-ask rates are $0.7560–$0.7625. The 3-month forward points are 12–16. Determine the $/CD 3-month forward bid-ask rates.

  1. A) $0.7548–$0.7609
  2. B) $0.7572–$0.7641
  3. C) $0.7512–$0.7616
  4. D) Cannot be determined with the information given.

 

Answer:  B

Explanation:  0.7572 = 0.7560 + 0.0012 and 0.7641 = 0.7625 + 0.0016.

Topic:  Forward Rate Quotations

 

 

 

67) Restate the following one-, three-, and six-month outright forward American term bid-ask quotes in forward points:

 

S($/SFr) = 0.8500 − 0.8505
F1($/SFr) = 0.8505 − 0.8505
F3($/SFr) = 0.8510 − 0.8520
F6($/SFr) = 0.8515 − 0.8530

A)

  Forward Point Quotations
One-Month 05-05
Three-Month 10-15
Six-Month 15-25
  1. B)
  Forward Point Quotations
One-Month 05-05
Three-Month 05-10
Six-Month 05-10
  1. C)
  Forward Point Quotations
One-Month 00-05
Three-Month 05-10
Six-Month 05-10
  1. D) none of the options

 

Answer:  A

Explanation:  For one-month, 0.8505 − 0.8500 = 0.0005 and 0.8510 − 0.8505 = 0.0005, which translates to 05-05. For three-month, 0.8510 − 0.8500 = 0.0010 and 0.8520 − 0.8505 = 0.0015, which translates to 10-15.For six-month, 0.8515 − 0.8500 = 0.8515 and 0.8530 − 0.8505 = 0.8525, which translates to 15-25.

Topic:  Forward Rate Quotations

 

68) If one has agreed to buy a foreign exchange forward,

  1. A) you have a short position in the forward contract.
  2. B) you have a long position in the forward contract.
  3. C) until the exchange rate moves, you haven’t made money, so you’re neither short nor long.
  4. D) you have a long position in the spot market.

 

Answer:  B

Topic:  Long and Short Forward Positions

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69) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a short position on €1,000. At maturity, the spot exchange rate is $1.60/€. How much have you made or lost?

  1. A) Lost $100
  2. B) Made €100
  3. C) Lost $50
  4. D) Made $150

 

Answer:  A

Explanation:  (1.5 × 1,000) = $1,500 and (1.6 × 1,000) = $1,600. $1,600 – $1,500 = $100.

Topic:  Long and Short Forward Positions

 

70) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.52/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market?

  1. A) Take a long position in a forward contract on €1,000,000 at $1.50/€.
  2. B) Take a short position in a forward contract on €1,000,000 at $1.50/€.
  3. C) Buy euro today at the spot rate, sell them forward.
  4. D) Sell euro today at the spot rate, buy them forward.

 

Answer:  A

Topic:  Long and Short Forward Positions

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71) The current spot exchange rate is $1.45/€ and the three-month forward rate is $1.55/€. Based upon your economic forecast, you are pretty confident that the spot exchange rate will be $1.50/€ in three months. Assume that you would like to buy or sell €100,000. What actions would you take to speculate in the forward market? How much will you make if your prediction is correct?

  1. A) Take a short position in a forward. If you’re right you will make $15,000.
  2. B) Take a long position in a forward contract on euro. If you’re right you will make $5,000.
  3. C) Take a short position in a forward contract on euro. If you’re right you will make $5,000.
  4. D) Take a long position in a forward contract on euro. If you’re right you will make $15,000.

 

Answer:  C

Explanation:  (1.55 × 100,000) = €155,000 and (1.5 × 100,000) = €150,000. The profit is found by €155,000 – €150,000 = €5,000.

Topic:  Long and Short Forward Positions

 

 

72) Consider a trader who takes a long position in a six-month forward contract on the euro. The forward rate is $1.75 = €1.00; the contract size is €62,500. At the maturity of the contract the spot exchange rate is $1.65 = €1.00.

  1. A) The trader has lost $625.
  2. B) The trader has lost $6,250.
  3. C) The trader has made $6,250.
  4. D) The trader has lost $66,287.88.

 

Answer:  B

Explanation:  (1.75 × 62,500) = $109,375 and (1.65 × 62,500) = $103.125. The loss is found by $103,125 – $109,375 = –$6,250.

Topic:  Long and Short Forward Positions

 

73) The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?

  1. A) Sell €1,000,000 forward for $1.50/€.
  2. B) Buy €1,000,000 forward for $1.50/€.
  3. C) Wait three months, if your forecast is correct buy €1,000,000 at $1.52/€.
  4. D) Buy €1,000,000 today at $1.55/€; wait three months, if your forecast is correct sell €1,000,000 at $1.62/€.

 

Answer:  B

Topic:  Long and Short Forward Positions

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74) The current spot exchange rate is $1.50/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?

  1. A) Sell €1,000,000 forward for $1.50/€.
  2. B) Buy €1,000,000 forward for $1.55/€.
  3. C) Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€.
  4. D) Buy €1,000,000 today at $1.50/€; wait three months, if your forecast is correct sell €1,000,000 at $1.62/€.

 

Answer:  B

Topic:  Long and Short Forward Positions

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75) Which of the following are correct?

  1. A) (j / k) =

B)(j / k) =

C)(k / j) =

D)all of the options

 

Answer:  D

Topic:  Forward Cross-Exchange Rates

 

76) Which of the following are correct?

  1. A) (j / k) =

B)(j / k) =

C)(k / j) =

D)all of the options

 

Answer:  B

Topic:  Forward Cross-Exchange Rates

 

 

77) Which of the following are correct?

  1. A) (j / k) =

B)(j / k) =

C)(j / k) =

D)all of the options

 

Answer:  A

Topic:  Forward Cross-Exchange Rates

 

78) Which of the following are correct?

  1. A) (k / j) =

B)(k / j) =

C)(k / j) =

D)all of the options

 

Answer:  C

Topic:  Forward Cross-Exchange Rates

 

79) When a currency trades at a premium in the forward market

  1. A) the exchange rate is more than one dollar (e.g., €1.00 = $1.28).
  2. B) the exchange rate is less than one dollar.
  3. C) the forward rate is less than the spot rate.
  4. D) the forward rate is more than the spot rate.

 

Answer:  D

Topic:  Forward Premium

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80) When a currency trades at a discount in the forward market

  1. A) the forward rate is less than the spot rate.
  2. B) the forward rate is more than the spot rate.
  3. C) the forward exchange rate is less than one dollar (e.g. €1.00 = $0.928).
  4. D) the exchange rate is less than it was yesterday.

 

Answer:  A

Topic:  Forward Premium

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81) The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/$. The forward premium (discount) is

  1. A) the dollar trading at an 8% premium to the Swiss franc for delivery in 180 days.
  2. B) the dollar trading at a 4% premium to the Swiss franc for delivery in 180 days.
  3. C) the dollar trading at an 8% discount to the Swiss franc for delivery in 180 days.
  4. D) the dollar trading at a 4% discount to the Swiss franc for delivery in 180 days.

 

Answer:  A

Explanation:  The formula for calculating the forward premium/discount is [(F(SF/j) – S(SF/j)) / S(SF/j)] × 360/days. Plugging into that formula, you should get the following: (1.30 – 1.25) / 1.25 = 0.04 × (360/180) = 0.08.

Topic:  Forward Premium

 

82) The €/$ spot exchange rate is $1.50/€ and the 120 day forward exchange rate is 1.45/€. The forward premium (discount) is

  1. A) the dollar trading at an 8% premium to the euro for delivery in 120 days.
  2. B) the dollar trading at a 5% premium to the Swiss franc for delivery in 120 days.
  3. C) the dollar trading at a 10% discount to the euro for delivery in 120 days.
  4. D) the dollar trading at a 5% discount to the euro for delivery in 120 days.

 

Answer:  C

Explanation:  The formula for calculating the forward premium/discount is [(F($/j) – S($/j)) / S($/j)] × 360/days. Plugging into that formula, you should get the following: (1.45 – 1.5) / 1.5 = –0.33 × (360/120) = –.01.

Topic:  Forward Premium

83) The €/$ spot exchange rate is $1.50/€ and the 90-day forward premium is 10 percent. Find the 90-day forward price.

  1. A) $1.65/€
  2. B) $1.50375/€
  3. C) $1.9125/€
  4. D) none of the options

 

Answer:  B

Explanation:  Solve the following for X: 0.01 = ((X – 1.5)/1.5)(360/90) and find X = 1.50375.

Topic:  Forward Premium

 

84) The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward premium is 8 percent. What is the outright 180 day forward exchange rate?

  1. A) SF1.30/$
  2. B) SF1.35/$
  3. C) SF6.25/$
  4. D) none of the options

 

Answer:  A

Explanation:  Solve the following for X: 0.08 = ((X – 1.25)/1.25)(360/180), and find X = 1.3.

Topic:  Forward Premium

 

85) The SF/$ 180-day forward exchange rate is SF1.30/$ and the 180 day forward premium is 8 percent. What is the outright spot exchange rate?

  1. A) SF1.30/$
  2. B) SF1.35/$
  3. C) SF1.25/$
  4. D) none of the options

 

Answer:  C

Explanation:  Solve the following for X: 0.08 = ((1.3 – X)/X) (360/180), and find X = 1.25.

Topic:  Forward Premium

86) Consider the following spot and forward rate quotations for the Swiss franc.

 

S($/SFr) = 0.85

F1($/SFr) = 0.86

F2($/SFr) = 0.87

F3($/SFr) =0.88

 

Which of the following is true?

  1. A) The Swiss franc is definitely going to be worth more dollars in six months.
  2. B) The Swiss franc is probably going to be worth less in dollars in six months.
  3. C) The Swiss franc is trading at a forward discount.
  4. D) The Swiss franc is trading at a forward premium.

 

Answer:  D

Topic:  Forward Premium

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87) Consider the following spot and forward rate quotations for the Swiss franc.

 

S($/SFr) = 0.85

F1($/SFr) = 0.86

F2($/SFr) = 0.87

F3($/SFr) =0.88

 

Calculate the 3-month forward premium in American terms. Assume 30-360 pricing convention.

  1. A) 0.353.
  2. B) 0.4235.
  3. C) 0.1364.
  4. D) 0.1412.

 

Answer:  D

Explanation:  The formula for calculating the forward premium/discount is [(F($/j) – S($/j)) / S($/j)] × 360/days. Plugging into that formula, you should get the following: (0.86 – 0.85)/0.85) × (30/360) = 0.1412.

Topic:  Forward Premium

88) Swap transactions

  1. A) involve the simultaneous sale (or purchase) of spot foreign exchange against a forward purchase (or sale) of approximately an equal amount of the foreign currency.
  2. B) account for about half of Interbank FX trading.
  3. C) involve trades of one foreign currency for another without going through the U.S. dollar.
  4. D) all of the options

 

Answer:  A

Topic:  Swap Transactions

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89) As a rule, when the interest rate of the foreign currency is greater than the interest rate of the quoting currency,

  1. A) the outright forward rate is less than the spot exchange rate.
  2. B) theoutright forward rate is more than the spot exchange rate.
  3. C) the currency will trade at a premium in the forward contract.
  4. D) none of the options

 

Answer:  A

Topic:  Swap Transactions

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90) Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask forward prices in terms of forward points. This is convenient because

  1. A) forward points may change faster than spot and forward quotes.
  2. B) forward points may remain constant for long periods of time, even if the spot rates change frequently.
  3. C) in swap transactions where the trader is attempting to minimize currency exposure, the actual spot and outright forward rates are often of no consequence.
  4. D) forward points may remain constant for long periods of time, even if the spot rates change frequently, and in swap transactions where the trader is attempting to minimize currency exposure, the actual spot and outright forward rates are often of no consequence.

 

Answer:  D

Topic:  Swap Transactions

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91) Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask forward prices in terms of forward points. Complete the following table:

 

Spot Forward Point Quotations 1.9072-1.9077
One-month 32-30  
Three-month 57-54 1.9015-1.9023
Six-month 145-138 1.8927-1.8939
  1. A) 1.9040–1.9047
  2. B) 1.9042–1.9049
  3. C) 1.9032–1.9030
  4. D) none of the options

 

Answer:  A

Explanation:  1.9072 – 0.0032 = 1.9040 and 1.9077 – 0.0030 = 1.9047.

Topic:  Swap Transactions

 

92) An exchange-traded fund (ETF) is

  1. A) the same thing as a mutual fund.
  2. B) a portfolio of financial assets in which shares representing fractional ownership of the fund are sold and redeemed by the fund sponsor.
  3. C) a portfolio of financial assets in which shares representing fractional ownership of the fund trade on an organized exchange.
  4. D) none of the options

 

Answer:  C

Topic:  Exchange Traded Currency Funds

 

 

 

93) The largest and most active financial market in the world is

  1. A) the Fleet Street Exchange in London.
  2. B) the NYSE in New York.
  3. C) the FX market.
  4. D) none of the options

 

Answer:  C

Topic:  Summary

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94) Nondollar currency transactions

  1. A) are priced by looking at the price that must exist to eliminate arbitrage.
  2. B) allow for triangular arbitrage opportunities to keep the currency dealers employed.
  3. C) are only for poor people who don’t have dollars.
  4. D) none of the options

 

Answer:  A

Topic:  Summary

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95) Consider the balance sheets of Bank A and Bank B. Bank A is in Milan, Bank B is in New York. The current exchange rate is €1.00 = $1.25. Show the correct balances in each account if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $125,000 using its correspondent relationship with Bank B.

 

Bank A (Milan) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
€ deposit at B € 500             B’s Eurodollar deposit $ 900          
$ deposit at B $ 800             B’s € deposit € 220          
Cash in the Vault € 200     € 200     Other Liabilities € 300     € 300  
Other Assets € 400     € 400     Owners Equity € 500     € 500  
Total Assets @ €1.00 = $1.25 € 1,740             Total Liabilities & Equity @ €1.00 = $1.25 € 1,740          

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A € 900             A’s euro deposit $ 500          
€ deposit at A $ 220             A’s $ deposit € 800          
Cash in the Vault € 200     € 200     Other Liabilities € 200     € 200  
Other Assets € 600     € 600     Owners Equity € 350     € 350  
Total Assets @ €1.00 = $1.25 € 1,975             Total Liabilities & Equity @ €1.00 = $1.25 € 1,975          

 

 

Answer:

Bank A (Milan) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
€ deposit at B € 500     € 600     B’s Eurodollar deposit $ 900     $ 1,025  
$ deposit at B $ 800     $ 675     B’s € deposit € 220     € 120  
Cash in the Vault € 200     € 200     Other Liabilities € 300     € 300  
Other Assets € 400     € 400     Owners Equity € 500     € 500  
Total Assets @ €1.00 = $1.25 € 1,740     € 1,740     Total Liabilities & Equity @ €1.00 = $1.25 € 1,740     € 1,740  

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A € 900     $ 1,025     A’s euro deposit $ 500     € 600  
€ deposit at A $ 220     € 120     A’s $ deposit € 800     $ 675  
Cash in the Vault € 200     € 200     Other Liabilities € 200     € 200  
Other Assets € 600     € 600     Owners Equity € 350     € 350  
Total Assets @ €1.00 = $1.25 € 1,975     $ 1,975     Total Liabilities & Equity @ €1.00 = $1.25 € 1,975     $ 1,975  

Topic:  Correspondent Banking Relationships

 

 

 

96) Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New York. The current exchange rate is £1.00 = $2.00. Show the correct balances in each account if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.

 

Bank A (London) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
£ deposit at B £ 500             B’s Eurodollar deposit $ 850          
$ deposit at B $ 1,000             B’s £ deposit £ 100          
Cash in the Vault £ 200             Other Liabilities £ 300          
Other Assets £ 400             Owners Equity £ 775          
Total Assets £ 1,600             Total Liabilities & Equity £ 1,600          

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A $ 850             A’s £ deposit £ 500          
£ deposit at A £ 100             A’s $ deposit $ 1,000          
Cash in the Vault $ 200             Other Liabilities $ 200          
Other Assets $ 1,000             Owners Equity $ 50          
Total Assets $ 2,250             Total Liabilities & Equity $ 2,250          

 

 

 

Answer:

Bank A (London) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
£ deposit at B £ 500     £ 545     B’s Eurodollar deposit $ 850     $ 940  
$ deposit at B $ 1,000     $ 910     B’s £ deposit £ 100     £ 55  
Cash in the Vault £ 200     £ 200     Other Liabilities £ 300     £ 300  
Other Assets £ 400     £ 400     Owners Equity £ 775     £ 775  
Total Assets £ 1,600     £ 1,600     Total Liabilities & Equity £ 1,600     £ 1,600  

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A $ 850     $ 940     A’s £ deposit £ 500     £ 545  
£ deposit at A £ 100     £ 55     A’s $ deposit $ 1,000     $ 910  
Cash in the Vault $ 200     $ 200     Other Liabilities $ 200     $ 200  
Other Assets $ 1,000     $ 1,000     Owners Equity $ 50     $ 50  
Total Assets $ 2,250     $ 2,250     Total Liabilities & Equity $ 2,250     $ 2,250  

Topic:  Correspondent Banking Relationships

 

 

 

97) Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New York. The current exchange rate is & pound;1.00 = $2.00. Show the correct balances in each account if a currency trader employed at Bank A buys £50,000 from a currency trader at Bank B for $100,000 using its correspondent relationship with Bank B.

 

Bank A (London) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
£ deposit at B £ 500             B’s Eurodollar deposit $ 850          
$ deposit at B $ 1,000             B’s £ deposit £ 100          
Cash in the Vault £ 200             Other Liabilities £ 300          
Other Assets £ 400             Owners Equity £ 775          
Total Assets £ 1,600             Total Liabilities & Equity £ 1,600          

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A $ 850             A’s £ deposit £ 500          
£ deposit at A £ 100             A’s $ deposit $ 1,000          
Cash in the Vault $ 200             Other Liabilities $ 200          
Other Assets $ 1,000             Owners Equity $ 50          
Total Assets $ 2,250             Total Liabilities & Equity $ 2,250          

 

 

 

Answer:

Bank A (London) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
£ deposit at B £ 500     £ 550     B’s Eurodollar deposit $ 850     $ 950  
$ deposit at B $ 1,000     $ 900     B’s £ deposit £ 100     £ 50  
Cash in the Vault £ 200     £ 200     Other Liabilities £ 300     £ 300  
Other Assets £ 400     £ 400     Owners Equity £ 775     £ 775  
Total Assets £ 1,600     £ 1,600     Total Liabilities & Equity £ 1,600     £ 1,600  

 

 

Bank B (NYC) 000s  
Assets   Liabilities and Equity  
  OLD   NEW     OLD   NEW  
Eurodollar Deposit at A $ 850     $ 950     A’s £ deposit £ 500     £ 550  
£ deposit at A £ 100     £ 50     A’s $ deposit $ 1,000     $ 900  
Cash in the Vault $ 200     $ 200     Other Liabilities $ 200     $ 200  
Other Assets $ 1,000     $ 1,000     Owners Equity $ 50     $ 50  
Total Assets $ 2,250     $ 2,250     Total Liabilities & Equity $ 2,250     $ 2,250  

Topic:  Correspondent Banking Relationships

 

 

98)

Country USD equiv. Currency per USD
  Tuesday Monday Tuesday Monday
U.K. (Pound) 1.7368 1.7424 0.5758 0.5739
1 Month Forward 1.7369 1.7425 0.5757 0.5739
3 Months Forward 1.738 1.7434 0.5754 0.5736
6 Months Forward 1.7409 1.7461 0.5744 0.5727
Canada (Dollar) 0.8667 0.8653 1.1538 1.1557
1 Month Forward 0.8674 0.866 1.1529 1.1547
3 Months Forward 0.8688 0.8674 1.151 1.1529
6 Months Forward 0.8708 0.8693 1.1484 1.1504
Japan (Yen) 0.008518 0.008495 117.3985 117.7163
1 Month Forward 0.008548 0.008525 116.0631 117.3021
3 Months Forward 0.008616 0.008593 116.0631 116.3738
6 Months Forward 0.008724 0.0087 114.6263 114.9425
Switzerland (Franc) 0.7648 0.7652 1.3075 1.3068
1 Month Forward 0.767 0.7674 1.3038 1.3031
3 Months Forward 0.7718 0.7722 1.2957 1.295
6 Months Forward 0.7791 0.7794 1.2835 1.283
Euro 1.2000 1.1906 0.8333 0.8399

 

Using the table, what is the Canadian dollar–euro spot cross-exchange rate?

 

Answer:

=  =

€0.722 = CAD1 is Ok as is So (CAD/€) = 1.3846

Topic:  Forward Cross-Exchange Rates

 

 

99)

Country USD equiv. Currency per USD
  Tuesday Monday Tuesday Monday
U.K. (Pound) 1.7368 1.7424 0.5758 0.5739
1 Month Forward 1.7369 1.7425 0.5757 0.5739
3 Months Forward 1.738 1.7434 0.5754 0.5736
6 Months Forward 1.7409 1.7461 0.5744 0.5727
Canada (Dollar) 0.8667 0.8653 1.1538 1.1557
1 Month Forward 0.8674 0.866 1.1529 1.1547
3 Months Forward 0.8688 0.8674 1.151 1.1529
6 Months Forward 0.8708 0.8693 1.1484 1.1504
Japan (Yen) 0.008518 0.008495 117.3985 117.7163
1 Month Forward 0.008548 0.008525 116.0631 117.3021
3 Months Forward 0.008616 0.008593 116.0631 116.3738
6 Months Forward 0.008724 0.0087 114.6263 114.9425
Switzerland (Franc) 0.7648 0.7652 1.3075 1.3068
1 Month Forward 0.767 0.7674 1.3038 1.3031
3 Months Forward 0.7718 0.7722 1.2957 1.295
6 Months Forward 0.7791 0.7794 1.2835 1.283
Euro 1.2000 1.1906 0.8333 0.8399

 

Using the table what is the 6-month forward pound–yen cross-exchange rate?

 

Answer:

=  =

¥200/£ is ok too

Topic:  Forward Cross-Exchange Rates

 

 

100)

Country USD equiv. Currency per USD
  Tuesday Monday Tuesday Monday
U.K. (Pound) 1.7368 1.7424 0.5758 0.5739
1 Month Forward 1.7369 1.7425 0.5757 0.5739
3 Months Forward 1.738 1.7434 0.5754 0.5736
6 Months Forward 1.7409 1.7461 0.5744 0.5727
Canada (Dollar) 0.8667 0.8653 1.1538 1.1557
1 Month Forward 0.8674 0.866 1.1529 1.1547
3 Months Forward 0.8688 0.8674 1.151 1.1529
6 Months Forward 0.8708 0.8693 1.1484 1.1504
Japan (Yen) 0.008518 0.008495 117.3985 117.7163
1 Month Forward 0.008548 0.008525 116.0631 117.3021
3 Months Forward 0.008616 0.008593 116.0631 116.3738
6 Months Forward 0.008724 0.0087 114.6263 114.9425
Switzerland (Franc) 0.7648 0.7652 1.3075 1.3068
1 Month Forward 0.767 0.7674 1.3038 1.3031
3 Months Forward 0.7718 0.7722 1.2957 1.295
6 Months Forward 0.7791 0.7794 1.2835 1.283
Euro 1.2000 1.1906 0.8333 0.8399

 

Using the table, what is 3-month forward premium or discount (expressed as an annual percentage rate) for the British pound in terms of U.S. dollars?

 

Answer:

0.28% =  ×

2.8% is a grievous error.

Topic:  Forward Cross-Exchange Rates

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