Global Financial Analysis

Only available on StudyMode
  • Download(s) : 36
  • Published : January 26, 2013
Open Document
Text Preview
Fundamentals of Multinational Finance, 3e (Moffett)
Chapter 5
The Foreign Exchange Market

5.1
Multiple Choice and True/False Questions

1)
Which of the following is NOT true regarding the market for foreign exchange? A)
The market provides the physical and institutional structure through which the money of one country is exchanged for another. B)
The rate of exchange is determined in the market.
C)
Foreign exchange transactions are physically completed in the foreign exchange market. D)
All of the above are true.
Answer:
D
Topic:
Introduction to the Foreign Exchange Market
Skill:
Recognition

2)
A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency. A)
Eurodollar transaction
B)
import/export exchange
C)
foreign exchange transaction
D)
interbank market transaction
Answer:
C
Topic:
Introduction to the Foreign Exchange Market
Skill:
Recognition

3)
While trading in foreign exchange takes place worldwide, the major currency trading centers are located in A)
London, New York, and Tokyo.
B)
New York, Zurich, and Bahrain.
C)
Paris, Frankfurt, and London.
D)
Los Angeles, New York, and London.
Answer:
A
Topic:
Introduction to the Foreign Exchange Market
Skill:
Recognition

4)
Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is level throughout the 24-hour day. Answer:
FALSE
Topic:
Introduction to the Foreign Exchange Market
Skill:
Recognition

5)
Which of the following is NOT a motivation identified by the authors as a function of the foreign exchange market? A)
The transfer of purchasing power between countries.
B)
Obtaining or providing credit for international trade transactions. C)
Minimizing the risks of exchange rate changes.
D)
All of the above were identified as functions of the foreign exchange market. Answer:
D
Topic:
Foreign Exchange Market Functions
Skill:
Recognition

6)
The authors identify two tiers of foreign exchange markets:
A)
bank and nonbank foreign exchange.
B)
commercial and investment transactions.
C)
interbank and client markets.
D)
client and retail market.
Answer:
C
Topic:
Foreign Exchange Market Tiers
Skill:
Recognition

7)
The foreign exchange market is NOT efficient because
A)
market participants do not compete with one another due to the fact that exchange takes place around the world and not in a single centralized location. B)
dealers have ask prices that are higher than bid prices.
C)
central governments dominate the foreign exchange market and everybody knows that by definition, central governments are inefficient. D)
none of the reasons listed are accurate because the foreign exchange market is efficient. Answer:
D
Topic:
Foreign Exchange Market Efficiency
Skill:
Conceptual

8)
Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize. Answer:
TRUE
Topic:
Foreign Exchange Market Dealers and Brokers
Skill:
Recognition

9)
Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers. Answer:
FALSE
Topic:
Foreign Exchange Market Profitability
Skill:
Recognition

10)
It is characteristic of foreign exchange dealers to
A)
bring buyers and sellers of currencies together but never to buy and hold an...
tracking img