1.

When short-term interest rates become lower in Tokyo than in New York, interest arbitrage
operations will most likely result in a (an):
- Increase in the spot price of the yen Incorrect
++++ sale of dollars in the forward market

3. The NZD/USD market bid-offer is 0.8368-0.8373 and the USD/SEK market bid-offer is 6.5241-
6.5250. What is the SEK/NZD bid rate where you can sell SEK?
- 0.1283 Incorrect

5. If there were an unexpected decline in the growth rate of the money supply in the U.S.
- Real interest rates, output, and prices would fall, causing the dollar to depreciate. Incorrect

9. A BRL/MXN spot rate is listed by a dealer at 0.1378. The 6-month forward rate is 0.14193.
The 6-month forward points are closest to:
- 413 Incorrect
++++ 4.13

12. A decrease in the real exchange rate (quoted in terms of domestic currency per unit of
foreign currency) is most likely to be associated with an increase in which of the following?
- Foreign price level Incorrect
++++ domestic price level

13. A major difference between the spot market and the forward market is:
- Currencies traded for future delivery Incorrect
++++ immediate delivery of currencies

18. A country’s currency will appreciate when its:

26. If a forward exchange rate quote is trading at a discount, which of the following statements
is most accurate?
- The swap points will be positive Incorrect
++++ The forward percentage will be negative.
1. An exchange rate:
a. is most commonly quoted in real terms.
b. is the price of one currency in terms of another.
c. between two currencies ensures they are fully convertible.
2. A decrease in the real exchange rate (quoted in terms of domestic currency per unit of
foreign currency) is most likely to be associated with an increase in which of the
following?
a. Foreign price level.
b. Domestic price level.
c. Nominal exchange rate.
3. In order to minimize the foreign exchange exposure on a euro-denominated receivable
due from a German company in 100 days, a British company would most likely initiate a:
a. spot transaction.
b. forward contract.
c. real exchange rate contract.
4. Which of the following counterparties is most likely to be considered a sell-side foreign-
exchange market participant?
a. A large corporation that borrows in foreign currencies.
b. A sovereign wealth fund that influences cross-border capital flows.
c. A multinational bank that trades foreign exchange with its diverse client base
5. What will be the effect on a direct exchange rate quote if the domestic currency
appreciates?
a. Increase
b. Decrease
c. No change
6. An executive from Switzerland checked into a hotel room in Spain and was told by the
hotel manager that 1 EUR will buy 1.2983 CHF. From the executive's perspective, an
indirect exchange rate quote would be:
a. 0.7702 EUR per CHF. - (1/1.2983) = 0.7702.
b. 0.7702 CHF per EUR.
c. 1.2983 EUR per CHF.
7. Over the past month, the Swiss Franc (CHF) has depreciated 12 percent against pound
sterling (GBP). How much has the pound sterling appreciated against the Swiss Franc?
a. 12%
b. Less than 12%
c. More than 12% - [1/(1 - 0.12)] - 1 = (1/0.88) - 1 = 0.1364, or 13.64%.
8. An exchange rate between two currencies has increased to 1.4500. If the base currency
has appreciated by 8% against the price currency, the initial exchange rate between the
two currencies was closest to:
a. 1.3340.
b. 1.3426. - 1.4500/X = 1.08 Solving for X leads to 1.45/1.08 = 1.3426.
 c. 1.5660.
9. A dealer provides the following quotes:

Ratio Spot rate

The spot ZAR/HKD cross-rate is closest to:

Ratio Spot rate

Another dealer is quoting the ZAR/SEK cross-rate at 1.1210. The arbitrage profit
that can be earned is closest to:
a. ZAR 3671 per million SEK traded.
b. SEK 4200 per million ZAR traded.
c. ZAR 4200 per million SEK traded.- SEK 1,000,000 × (1.1210 - 1.1168) =
ZAR 4200
11. A BRL/MXN spot rate is listed by a dealer at 0.1378. The 6-month forward rate is
0.14193. The 6-month forward points are closest to:
a. -41.3.
b. +41.3. - The number of forward points equals the forward rate minus
the spot rate, or 0.14193 - 0.1378 = 0.00413, multiplied by 10,000:
10,000 × 0.00413= 41.3 points.
c. +299.7
12. A three-month forward exchange rate in CAD/USD is listed by a dealer at 1.0123. The
dealer also quotes 3-month forward points as a percentage at 6.8%. The CAD/USD spot
rate is closest to:
a. 0.9478. - Spot rate × (1 + Forward points as a percentage) = Forward rate
Spot rate × (1 + 0.068) = 1.0123
Spot = 1.0123/1.068 =0.9478
b. 1.0550.
c. 1.0862.
13. If the base currency in a forward exchange rate quote is trading at a forward discount,
which of the following statements is most accurate?
a. The forward points will be positive.
b. The forward percentage will be negative.
c. The base currency is expected to appreciate versus the price currency.
14. A forward premium indicates:
a. an expected increase in demand for the base currency.
b. the interest rate is higher in the base currency than in the price currency.
c. the interest rate is higher in the price currency than in the base currency.
15. The JPY/AUD spot exchange rate is 82.42, the JPY interest rate is 0.15%, and the AUD
interest rate is 4.95%. If the interest rates are quoted on the basis of a 360-day year, the
90-day forward points in JPY/AUD would be closest to:
a. -377.0.
b. -97.7. -
FJPY/AUD=SJPY/AUD(1+iJPYτ1+iAUDτ)=82.42(1+.0015(90360)1+.0495(90360))=
82.42×.98815=81.443 The forward points are 100 × (F - S) = 100 × (81.443 -
82.42) = 100 × (-0.977) = -97.7.
c. 98.9.
16. Which of the following is not a condition of an ideal currency regime?
a. Fully convertible currencies.
b. Fully independent monetary policy.
c. Independently floating exchange rates.
17. In practice, both a fixed parity regime and a target zone regime allow the exchange rate
to float within a band around the parity level. The most likely rationale for the band is
that the band allows the monetary authority to:
a. be less active in the currency market.
b. earn a spread on its currency transactions.
c. exercise more discretion in monetary policy.
18. A fixed exchange rate regime in which the monetary authority is legally required to hold
foreign exchange reserves backing 100% of its domestic currency issuance is best
described as:
a. dollarization.
b. a currency board.
c. a monetary union.
19. A country with a trade deficit will most likely:
a. have an offsetting capital account surplus.
b. save enough to fund its investment spending.
c. buy assets from foreigners to fund the imbalance.
20. A large industrialized country has recently devalued its currency in an attempt to correct
a persistent trade deficit. Which of the following domestic industries is most likely to
benefit from the devaluation?
a. Luxury cars.
b. Branded prescription drugs.
c. Restaurants and live entertainment venues.
21. A country with a persistent trade surplus is being pressured to let its currency
appreciate. Which of the following best describes the adjustment that must occur
if currency appreciation is to be effective in reducing the trade surplus?
a. Domestic investment must decline relative to saving.
b. Foreigners must increase investment relative to saving.
c. Global capital flows must shift toward the domestic market.