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Exam 11: Foreign Exchange

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Question 21

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A depreciation of the dollar refers to:

A) A fall in the dollar price of foreign currency
B) An increase in the dollar price of foreign currency
C) A loss of foreign-exchange reserves for the U.S.
D) An intervention in the international money market

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Question 22

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Table 11.1 gives the exchange rate quotations for the U.S.dollar and the British pound. Table 11.1.Foreign Exchange Quotations -Consider Table 11.1.If one were to buy pounds for immediate delivery,on Tuesday the dollar cost of each pound would be:

A) $0.7008
B) $0.7037
C) $1.4211
D) $1.4270

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Question 23

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When the real exchange rate of Japan's yen appreciates

If the Swiss demand for dollars is inelastic,an appreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

In the interbank market for foreign exchange,the ____ refers to the difference between the offer rate and the bid rate.

If a Citibank dealer expects the Swiss franc to appreciate against the U.S.dollar,she will attempt to lower both bid and offer rates for the franc,attempting to persuade other dealers to buy francs from Citibank and dissuade other dealers from selling francs to Citibank.

If Chase Manhattan Bank quotes bid and offer rates for the Swiss franc at $.5250/$.5260,the bank would realize profits of $1,000 on the purchase and sale of 1 million francs.

The demand schedule for Swiss francs is always downsloping while the supply schedule of francs is always upsloping.

Exhibit 11.1 Assume the following: (1) the interest rate on 6-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485. -Assume that you are the Chase Manhattan Bank of the United States,and you have 1 million Swiss francs in your vault that you will need to use in 30 days.Moreover,you need 500,000 British pounds for the next 30 days.You arrange to loan your francs to Barclays Bank of London for 30 days in exchange for 500,000 pounds today,and reverse the transaction at the end of 30 days.You have just arranged a:

If the dollar's real exchange rate index increases,American products become more affordable to foreign buyers.

The pound shows a forward premium against the dollar (the forward rate is greater than the spot rate) when

An increase in the dollar price of other currencies tends to cause:

International investors who hedge against exchange rate risk often use currency forward contracts.

A commercial bank profits from foreign-exchange trading when its bid rate exceeds its offer rate.

Which of the following would not induce the U.S.demand curve for foreign exchange to shift backward to the left?

-In the table above,a change in the ______ will result in a movement along the demand schedule for pounds

A person needing foreign exchange immediately would purchase it on the spot market.

If it takes $1.5515 to buy 1 pound and $0.6845 to buy 1 franc,it takes 2.27 francs to buy 1 pound.

Concerning foreign exchange trading,wholesale transactions involving more than 1 million currency units generally

Most foreign exchange transactions involve the transfer of cash,rather than electronic balances,between commercial banks or foreign exchange dealers.