MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the economic ﬁeld of agency theory, which one of the following is viewed as an agent with the principals who are most importantly the ﬁrm's shareholders? A) managers B) employees C) attorneys D) suppliers 2) The cash manager at AmFlex Company needs to buy 1,000,000 British pounds to pay a British supplier. A currency broker quotes him a bid-ask rate of ₤.4865-.5116/US$. What will be the dollar cost of the 1,000,000 pounds? A) $486,618 B) $1,954,652 C) $511,587 D) $2,055,499 3) In determining why a ﬁrm becomes multinational there are many reasons. One reason is that the ﬁrm is a market seeker. Which of the following is NOT a reason why market seeking ﬁrms produce in foreign countries? A) Satisfaction of local demand in the domestic markets. B) Political safety and small likelihood of government expropriation of assets. C) Satisfaction of local demand in the foreign country. D) All of the above are market-seeking activities. 4) It is characteristic of foreign exchange dealers to A) trade only with clients in the retail market and never operate in the wholesale market for foreign exchange. B) bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale. C) act as market makers, willing to buy and sell the currencies in which they specialize. D) All of the above are characteristics of foreign exchange dealers. 5) The broker at Deutsche Bank quotes bid-ask rates of ¥104.15-30/$. What would be its direct asking price for yen if the bank's €/$ ask rate is .6550? A) €159.24/¥ B) €.00628/¥ C) €.0061/¥ D) €164.25/¥ 6) Most foreign exchange transactions are through the U.S. dollar. If the transaction is expressed as the foreign currency per dollar this known as ________ whereas ________ are expressed as dollars per foreign unit. A) European terms; American terms B) American terms; direct C) European terms; indirect D) American terms; European terms 1)
Use the table to answer following question. Yen: Spot and Forward (¥/$) Mid Rates Bid Ask Spot 129.87 129.82 129.92 Forward Rates 1 month 129.68 -20 -18 6 months 128.53 -136 -132 Swaps 2 year 117.65 1232 1212 3 year 115.50 1452 1422 Pound: Spot and Forward ($/£) Mid Rates Bid Ask 1.4484 1.4481 1.4487 1.4459 1.4327 1.4250 1.4225 -26 -160 -238 -265 -24 -154 -230 -253 7)
7) Refer to the table above. The current spot rate of dollars per pound as quoted in a newspaper is ________ or ________. A) $1.4481/£; £0.6906/$ B) £1.4484/$; $0.6904/£ C) £1.4487/$; $0.6903/£ D) $1.4484/£; £0.6904/$ 8) The following is an example of an American term foreign exchange quote: A) 100¥/€ . B) € 0.85/$. C) $20/£. D) None of the above. 9) A forward contract to deliver British pounds for U.S. dollars could be described either as ________ or ________. A) selling pounds forward; buying dollars forward. B) selling pounds forward; selling dollars forward. C) selling dollars forward; buying pounds forward. D) buying dollars forward; buying pounds forward. 10) ________ are NOT one of the three categories reported for foreign exchange. A) Spot transactions B) Futures transactions C) Strip transactions D) Swap transactions 11) If the underlying transaction gives you a liability, denominated in foreign currency, the general principal behind a money market hedge states you need an equivalent ________ in the money market to provide a hedge. A) forward contract B) liability C) asset D) foreign bank account 12) ________ states that differential rates of inﬂation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate. A) Absolute Purchasing Power Parity B) Relative Purchasing Power Parity C) The International Fisher Effect D) The Fisher Effect 13) ________ states that nominal interest rates in each country are equal to the required...