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Focused topic practice

foreign exchange MCQs

Practise focused foreign exchange questions with marked answers for exam preparation and subject revision.

foreign exchange Mcqs

1. Under a system of floating exchange rates there is a general tendency for ?
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A. the currencies of relatively low inflation countries to depreciate

B. the currencies of relatively high-inflation countries to depreciate

C. exchange rates to be insensitive to the differential rates of inflation between countries

D. the currencies of relatively high inflation countries to appreciate

2. Suppose that a Swiss television set that costs 400 francs in Switzerland cost $200 in the United States. The exchange rate between the franc and the dollar is ?
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A. $3 per franc

B. 1 franc per dollar

C. $2 per franc

D. 2 francs per dollar

3. The J-curve effect refers to the observation that ?
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A. GDP usually decreases before it increases after a currency depreciation

B. GDP usually decreases before it increases after a currency appreciation

C. the trade balance usually gets worse before it improves after a currency depreciation

D. the trade balance usually gets better before it gets worse after a currency appreciation

4. If Swedens currency depreciates relative to Norways currency ?
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A. Swedens export goods become cheaper to Norways residents

B. Swedens export goods become cheaper to Swedens residents

C. Norways export goods become more expensive to Norways residents

D. Norways exports goods become cheaper to Swedens residents

5. Under a system of floating exchange rates the pound would depreciate in value if there occurs ?
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A. Price inflation in the United States

B. an increase in U.S real income

C. falling interest rates in Britain

D. a decrease in the British money supply

6. A fiscal expansion in the UK ?
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A. tends to appreciate the pound sterling

B. has no predictable effect on the price of the pound sterling?

C. tends to depreciate the pound sterling

D. does not affect the price of the pound sterling

7. If the bank is selling francs for $0.45, then what is the implied franc price of the dollar ?
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A. 1.999

B. 2

C. 2.222

D. 2.323

8. The largest volume of foreign exchange trading takes place in ?
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A. Germany

B. USA

C. United Kingdom

D. China

9. An important feature of a _______ is that the holder has the right but not the obligation to buy or sell currency ?
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A. foreign exchange option

B. foreign exchange arbitrage

C. Swap

D. futures market contract

10. Expansionary monetary policy ?
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A. tends to lead to an appreciation of a nations currency

B. usually has no effect on a currencys exchange value

C. tends to lead to a depreciation of the currencies of other nations

D. tends to lead to a depreciation of a nations currency

11. The supply of foreign currency tends to be ?
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A. upward sloping

B. any of the above

C. downward sloping

D. vertical

12. Given the foreign currency market for the Swiss franc, the supply of franc slopes upward, because as the dollar price of the franc rises ?
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A. Switzerlands demand for American merchandise falls

B. Switzerlands demand for American merchandise rises

C. Americas demand for Swiss merchandise rises

D. Americas demand for Swiss merchandise falls

13. The agreements that were reached at the Bretton Woods conferences in 1944 established a system ?
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A. of essentially fixed exchange rates under which each country agreed to intervene in the foreign exchange market when necessary to maintain the agreed upon value of its currency

B. of floating exchange rates determined of the supply and demand of one nations currency relative to the currency of other nations

C. That prohibited governments from intervening in the foreign exchange markets

D. in which the value of currencies was fixed in terms of a specific number of ounces of gold, which in turn determined their values in international trading

14. All currencies other than the domestic currency of a given country are referred to as ?
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A. near monies

B. reserve currencies

C. foreign exchange

D. hard currency

15. Riskless transactions to take advantage of profit opportunities due to a price differential or a yield differential in excess of transaction costs are called ?
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A. forward transactions

B. cash transaction

C. differential actions

D. arbitrage

16. The essential feature of a _______ is that it immediately fixed the rate at which a specified amount of one currency is to be delivered in exchange for a specific amount of another at a future date ?
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A. forward contract