Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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Assume that a bank's bid rate on Swiss francs is £0.25 and its ask
rate is £0.26. Its bid-ask percentage spread is:
a. | 4.00%. | c. | about 3.85%. | b. | 4.26%. | d. | about 4.17%. |
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2.
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Assume the Canadian dollar is equal to £0.51 and the Peruvian Sol is equal
to £0.16. The value of the Peruvian Sol in Canadian dollars is:
a. | about .3621 Canadian dollars. | c. | about 2.36 Canadian
dollars. | b. | about .3137 Canadian dollars. | d. | about 2.51 Canadian
dollars. |
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3.
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_______ is not a bank characteristic important to customers in need of foreign
exchange.
a. | Quote competitiveness | b. | Speed of execution | c. | Forecasting
advice | d. | Advice about current market conditions | e. | All of the above are important bank
characteristics to customers in need of foreign exchange. |
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4.
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LIBOR is:
a. | the interest rate commonly charged for loans between banks. | b. | the average
inflation rate in European countries. | c. | the maximum loan rate ceiling on loans in the
international money market. | d. | the maximum deposit rate ceiling on deposits in
the international money market. | e. | the maximum interest rate offered on bonds that
are issued in London. |
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5.
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From 1944 to 1971, the exchange rate between any two currencies was
typically:
a. | fixed within narrow boundaries. | b. | floating, but subject to central bank
intervention. | c. | floating, and not subject to central bank intervention. | d. | nonexistent; that is
currencies were not exchanged, but gold was used to pay for all foreign
transactions. |
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6.
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Futures contracts are typically _______; forward contracts are typically
_______.
a. | sold on an exchange; sold on an exchange | b. | offered by
commercial banks; sold on an exchange | c. | sold on an exchange; offered by commercial
banks | d. | offered by commercial banks; offered by commercial
banks |
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7.
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When the foreign exchange market opens in the UK each morning, the opening
exchange rate quotations will be based on the:
a. | closing prices in the U.S. during the previous day. | b. | closing prices in
Canada during the previous day. | c. | prevailing prices in locations where the
foreign exchange markets have been open. | d. | officially set by central banks before the U.S.
market opens. |
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8.
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A share of the ADR of a Dutch firm represents one share of that firm's
stock that is traded on a Dutch stock exchange. The share price of the firm was 15 euros when the
Dutch market closed. As the U.S. market opens, the euro is worth $1.10. Thus, the price of the ADR
should be _____.
a. | $13.64 | b. | $15.00 | c. | $16.50 | d. | 16.50 euros | e. | none of the
above |
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True/False
Indicate whether the
statement is true or false.
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9.
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The forward rate is the exchange rate used for immediate exchange of
currencies.
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10.
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Under the gold standard, each currency was convertible into gold at a specified
rate, and the exchange rate between two currencies was determined by their relative convertibility
rates per ounce of gold.
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11.
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The strike price is also known as the premium price.
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12.
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Eurobonds are certificates representing bundles of stock.
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