foreign exchange MCQs – Page 2

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

foreign exchange Mcqs

21. The exchange rate is kept the same across geographically separate markets by ?
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A. arbitrage

B. hedging

C. speculation

D. government regulation

22. 1. The most widely traded currency in the foreign exchange market is the ?
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A. British pound

B. Chinese Yuan

C. euro

D. U.S dollar

23. Exchange rates that are determined by the unregulated forces of supply and demand are ?
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A. pegged exchange rates

B. floating exchange rates

C. fixed exchange rates

D. managed exchange rates

24. A depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is ?
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A. inelastic

B. Unitary elastic

C. constant

D. elastic

25. The price of one countrys currency in terms of another countrys currency is the ?
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A. exchange rate

B. currency valuation

C. terms of trade

D. balance of trade

26. Suppose that Boeing is to receive payment in euros in 6 month and wants to engage in hedging the firm would _______ euros on the 6-month forward market in order to protect itself from a/an of the euro?
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A. sell; appreciation

B. buy; depreciation

C. sell; depreciation

D. buy; appreciation

27. If the exchange rate is 11 Mexican pesos per U.S dollar, then it takes _______ to buy 1 peso?
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A. $0.0909

B. $1.10

C. $0.28

D. $0.10

28. Currency speculation is _____ if speculators bet against market forces that cause exchange fluctuations, thus moderating such fluctuations ?
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A. stabilizing

B. destabilizing

C. inflationary

D. deflationary

29. The theory of international exchange that holds that exchange rates adjust to offset differences in countries inflation rates in the ?
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A. purchasing power parity theory

B. J-curve theory

C. price feedback theory

D. trade feedback theory

30. If a nations interest rates are relatively low compared to those of other countries then the exchange value of its currency will tend to ?
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A. appreciate under a system of floating exchange rates

B. depreciate under a system of floating exchange rates

C. depreciate under a system of fixed exchange rates

D. appreciate under a system of floating fixed rates

31. The franc is said to be selling at a _______ if the spot dollar price is $0.48 and the nine-month forward rate is $0.42 ?
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A. forward spread

B. forward discount

C. None of these

D. forward premium

32. During the era of dollar appreciation from 1981 to 1985 a main reason why the dollar did not fall in value was ?
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A. rising price inflation in the United States

B. flows of foreign investment into the United States

C. a substantial increase in U.S exports

D. a substantial decrease in U.S imports

33. In a supply and demand diagram for Japanese yen, with the exchange rate in dollars per yen on the vertical axis, the demand schedule for yen is drawn sloping ?
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A. horizontal

B. upward

C. vertical

D. downward

34. If the Bank of England reduces the money supply to reduce inflation a floating exchange rate will aid the Bank of England in fighting inflation because ?
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A. as the money supply is decreased the interest rate will increase and the price of UK exports will rise and the Price of UK imports will fall

B. as the money supply is decreased the interest rate will increase, and the price of UK exports will fall and the price of UK imports will rise

C. as the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall.

D. as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise

35. The rise in value of one currency relative to another is ?
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A. An appreciation of a currency

B. A depreciation of a currency

C. a weakening of a currency

D. a debasement of a currency

36. The real effective exchange rate for the U.S dollar ?
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A. reflects only the influences of merchandise or real trade on the dollars exchange value

B. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?

C. reflects only transactions in the currency futures market

D. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?

37. Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price, within a few days to a couple of years ?
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A. foreign currency option

B. letter a credit

C. cable transfer

D. bill of exchange

38. Investor engage in _____ when they move funds into foreign currencies in order to take advantage to interest rates abroad that are higher than domestic interest rates ?
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A. long positions

B. short positions

C. currency arbitrage

D. interest arbitrage

39. Suppose there occurs an increase in the Canadian demand for Japanese computers This results in a (an) ?
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A. increase in the supply of yen

B. increase in the demand for yen

C. decrease in the Supply of yen

D. decrease in the demand for yen

40. The least common type of transaction in the foreign exchange is a ?
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A. None of the above

B. spot transaction

C. forward transaction

D. swap transaction

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