Which one of the following options is not a type of swap? A) the sale of foreign currency short-term forward against the purchase of foreign currency forward B) the purchase of foreign currency short-term forward against the sale of foreign currency long-term forward C) the purchase of foreign currency spot against the sale of foreign […]
Why are the bid-ask spreads larger in the forward market than in the spot market? A) because the forward market is less liquid than the spot market B) because the spot market is more volatile than the forward market C) because the forward market is more liquid than the spot market D) because the spot […]
If the euro is selling at a premium relative to the USD in the forward market, is the forward price of USD /EUR larger or smaller than the spot price of the USD /EUR? A) larger B) smaller C) indeterminate D) the same ANSWER Answer: A
________ is the price of one country’s money quoted in terms of another country’s money. A) Arbitrage B) PPP C) Exchange rate D) Direct rate E) LIBOR ANSWER C
What is the name of the action that uses derivative securities to reduce risks arising from underlying business transactions in financial markets? A) forward contracts B) hedging C) forward rates D) speculating ANSWER Answer: B
If the British pound is selling at a premium relative to the euro in the forward market, is the forward price of EUR/₤ larger or smaller than the spot price of EUR/₤? What will be an ideal response? ANSWER Answer: When the pound is selling at a premium in the forward market, the […]
Using financial information to aid in decision making is called A) “what-if” analysis. B) factor analysis. C) financial analysis. D) quantitative analysis. E) managerial economics. ANSWER C
What is the name of the exchange rate specified in the forward contract? A) spot rate B) forward rate C) future exchange rate D) cross-rate ANSWER Answer: B
If you want to hedge and owe a firm a foreign currency in the future, you would A) buy the foreign currency forward. B) sell the foreign currency forward. C) speculate on the possibility to not hedge. D) buy the currency now and deposit into a bank account until needed. ANSWER Answer: A
One important purpose of the forward markets for foreign exchange allows global traders to protect themselves by ________. A) hedging B) arbitraging C) speculating D) preventing default ANSWER Answer: A
