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Clintoncorp (USA) has 4 EUR futures contracts (size: EUR
125,000/contract). Clintoncorp bought them at the price of USD1.3000
/EUR 1 month ago. Calculate Clintoncorp's profit/loss if the current futures price is USD1.3060/EUR: a. Loss of USD 750 b. Profit USD 750 c. Profit USD 3000 d. Loss USD 3000
Mexicocorp (Mexico) has about $3,500,000 in receivables over the next
three months. Mexicocorp wil hedge against exchange rate risk by
a. buying a call option contract for USD3,500,000 in 3 months
b. Buying future contract to sell 3,500,000 in 3 months
c. selling 3-month forward for USD 3,500,000 VND
d. entering a swap contract in which the company sells spot and buys 3-month forward for USD3,500,000
Which of the following is NOT a characteristic of the Bretton Woods system:: a. Possible BOP imbalance
b. Only USD is used as an international reserve
c. Central banks are obligated to maintain a stable exchange rate
d. The exchange rate between USD and other currencies is fixed but can be adjusted in a range of +/- 1%
A put option contract of an exercise price of JPY 90.80/USD is _______ when
the spot price of USD is JPY 90.50 Select one: a. Neither is correct b. ATM c. ITM d. OTM
Suppose the inflation rate in Australia goes up relative to the U.S. inflation
rate. What effect will that have on the supply, demand, and equilibrium
exchange rate of the Australian dollar? Select one:
a. the supply of Australian dollars will go down, the demand for Australian dollars
will go up, and the Australian dollar will depreciate
b. the supply of Australian dollars will go down, the demand for Australian dollars
will go up, and the Australian dollar will appreciate
c. the supply of Australian dollars will go up, the demand for Australian dollars will
go down, and the Australian dollar will appreciate
d. the supply of Australian dollars will go up, the demand for Australian
dollars will go down, and the Australian dollar will depreciate
There are various forms of purchasing power parity (PPP) theory. Which form of PPP
is also known as the "law of one price"? Select one: a. none of the mentioned b. absolute form c. relative form d. numerical form
The Japanese exporter has EUR 1,500,000 in receivables over the next 6
months, the exporter can hedge against exchange rate risk by
a. selling EUR futures contracts traded on the OTC market
b. entering a swap contract to buy spot and sell 6 months forward for EUR 1,500,000
c. selling 6 month forward contract for EUR 1,500,000
d. buying call option for EUR 1,500,000 in the next 6 month
An increase in UK interest rates relative to euro interest rates is likely to
________ the UK demand for euros and _________ the supply of euros for sale a. increase; reduce b. reduce; increase c increase; increase d. reduce; reduce
When UK interest rates are higher, it becomes more attractive for investors to hold
UK currency (British Pound, GBP) because they can earn a higher return on their
investments. This, in turn, reduces the demand for euros (EUR) since investors will
prefer to hold GBP. The increase in the supply of euros results from people selling
euros to buy higher-yielding GBP.
News of a potential surge in U.S. inflation and zero Chilean inflation places
_______ pressure on the value of the Chilean peso. The pressure will occur _______.
a. upward; only after the U.S. inflation surges b. downward; immediately
c. downward; only after the U.S. inflation surges d d. upward; immediately
Market-based forecasting is based on what? a. neither (1) nor (2) b. either (1) or (2) c. forward rates (2) d. spot rates (1)
Which of the following is a similarity between the currency futures market and the forward market?
a. both are self-regulating (False, because Future Contracts are not
self regulating. They are regulated by Proper Authority like SEBI in India etc.)
b. both use standardized delivery dates (True, because in both the
contracts , Delivery Price is agreed upon entering in to contract, thus
making it Standardised Delivery Rate)
c. none of the above are similarities
d. both use standardized contract sizes (False. because Future
Contracts used Standard Contracts while Forward Market uses Private and Customised Contracts)
The Bretton Woods Conference in 1944 resulted in the birth and operation of
a. The currencies of the member countries are freely convertible to gold (3)
b. A fixed but adjustable exchange rate system (2)
c. A system in which members are free to choose their exchange rate regime (1) d. (1) and (3) are correct
The Canadian dollar spot rate is USD0.76 and the 180-day forward rate is
USD0.74. According to the Covered Interest Parity (CIP), the difference
between these two rates reflects:
a. Prices in Canada are expected to rise faster than in the US
b. Inflation in the US is lower than inflation in Canada
c. The Canadian dollar's spot rate is expected to rise against the US dollar
d. Interest rates are higher in Canada than in the US
Assume that domestic inflation is higher than foreign inflation. How will
this affect the supply of foreign currency, the demand for foreign currency
and the exchange rate in the foreign exchange market?
a. Supply increases, demand decreases and the exchange rate falls
b. Supply decreases, demand increases and the exchange rate increases
c. Supply increases, demand decreases and the exchange rate rises
d. Supply decreases, demand does not change, and the exchange rate falls.
Currently, the 6-month forward point of GBP is 145-138. Britishcorp (UK)
buys 6-month forward contract for USD 1,128,600. If the spot rate 2
months later is USD1.5220/GBP, the Britishcorp forward contract will: a. Unable to determine b. get loss c. get profit d. get neither profit nor loss
The Japanese exporter has EUR 1,500,000 in receivables over the next 6
months, the exporter can hedge against exchange rate risk by:
a. selling EUR futures contracts traded on the OTC market
b. entering a swap contract to buy spot and sell 6-month forward for EUR 1,500,000
c. buying 6-month forward for EUR 1,500,000
d. buying a put option for EUR 1,500,000 in 6 months
Which of the following are possible contract periods for forward contracts? a. all of the above b. 97 days c. 30 days d. 65 days
The IMF expects inflation in the UK and Hong Kong to be 3% and 4.5%
respectively in 2022. According to this expectation, PPP implies that the exchange rate of GBP: a. decreases by 1.5% b. is unchanged c. increases by 1.5%
d. PPP does not provide an implication of exchange rate volatility expectations
based on inflation correlation expectations
Which of the following is not a factor that affects exchange rates? : a. relative interest rates
b. all of the mentioned are factors that affect exchange rates c. relative inflation rates d. relative income levels
Which of the following statements about futures contracts is NOT TRUE
a. Futures contracts are guaranteed by the clearing house
b. The clearing house determines the profit and loss of the traders on the delivery days
c. Futures contract parties must deposit initial margin and maintenance margin
d. Contract size, delivery day, delivery month and last trading day of future contracts are standardized
If a forecaster predicts the British pound to be $1.70 in one year, but the
spot rate of the pound turns out to be $1.80 in one year, what is the
absolute forecast error as a percentage of realized value? : a. -5.56% b. 5.56% c. 5.88% d. -5.88%
Which of the following is a limitation in fundamental forecasting? a. (1) and (3)
b. the forecasts are always inaccurate (2)
c. omission of other relevant factors from the model (3)
d. uncertain timing of impact (1)
Which of the following is not a method of forecasting exchange rates? Select one: a. fundamental b. market-based c. technical d. institutional
Any event that reduces the euro area demand for Japanese yen should
result in a(n) _______ in the value of the Japanese yen with respect to
_______, other things being equal
a. increase; noneuro currencies
b. decrease; noneuro currencies c. decrease; euro d. increase; euro
The main functions of the International Monetary Fund (IMF) do NOT include
a. increasing the stability of the exchange rate
b. financing temporary balance of payments deficits of member states
c. promoting cooperation among countries in international monetary policy
d. establishing major financial centers in the world ( chat gpt)
______ forecasting involves use of historical exchange rate data to predict future values. a. technical b. b. fundamental c. none of the mentioned d. market-based
The outward covered interest arbitrage (borrow home currency to invest
in foreign currency) affects the foreign and home currencies and foreign
exchange markets. The effects of the outward CIA make: Select one: a. forward rate increases (2)
b. Sentences (1), (2), (3) are all wrong
c. domestic interest rates fall (1)
d. foreign interest rates fall (3)
The theory implying that the inflation differential between two economies
reflects the difference in nominal interest rates between the two economies is
a. Uncovered interest rate parity
b. Covered interest rate parity
c. The International Fisher Effect
d. Relative purchasing power parity
The International Monetary System (IMS) has undergone several transformations: (i)
Bimetallism system; (ii) Bretton Woods system; (iii) Classical Gold Standard; (iv)
Interwar period. The chronological order of development of the IMS is Select one: a. (ii), (i), (iii), (iv) b. (iii), (i), (iv), (ii) c. (i), (iii), (ii), (iv)
d. (i), (iii), (iv), (ii)
The IMF released its forecast for inflation in Korea at 6.5% this year.
Meanwhile, inflation in the US is expected by analysts to stay at 2.5% this
year. According to PPP, how do investors expect the exchange rate of USD
(against KRW)? Select one:
a. PPP does not give implication on exchange rate forecast
b. The rate of USD is unchanged
c. USD increases by about 4% d. USD decreases by about 4%