Foreign Exchange Market
1. Which agreement established fixed exchange rates after World War II?
a) Gold Standard
b) Bretton Woods Agreement
c) Smithsonian Agreement
d) Basel Accord
Answer: b) Bretton Woods Agreement
2. In the spot market, the exchange rate used for immediate transactions is called:
a) Forward rate
b) Futures rate
c) Spot rate
d) Cross rate
Answer: c) Spot rate
3. If a bank quotes a bid rate of
4. 1.52andanaskrateof
5. 1.52andanaskrateof1.60 for GBP, how many pounds will $1,000 USD convert
to?
a) £625
b) £658
c) £500
d) £725
Answer: a) £625
6. Which factor does NOT influence the bid/ask spread?
a) Currency risk
b) Competition
c) Time zones
d) Order costs
Answer: c) Time zones
7. A direct quotation for USD/TL is 36.45. What is the indirect quotation?
a) 0.0274 TL/USD
b) 1.52 TL/USD
c) 36.45 TL/USD
d) 0.0345 TL/USD
Answer: a) 0.0274 TL/USD
International Money Market
6. Eurodollars refer to:
a) Euros deposited in U.S. banks
b) U.S. dollars deposited in European banks
c) Japanese yen in Asian markets
d) British pounds in London banks
Answer: b) U.S. dollars deposited in European banks
7. Which market emerged to serve businesses needing dollar transactions in Asia?
a) Eurocurrency market
b) Asian dollar market
c) Syndicated loan market
d) Basel market
Answer: b) Asian dollar market
8. A key risk of international money market securities is:
a) Default risk
b) Exchange rate risk
c) Political risk
d) All of the above
Answer: d) All of the above
International Credit Market
9. A syndicated loan is typically used when:
a) A single bank cannot meet the borrower’s needs
b) The loan is short-term
c) The borrower is a government agency
d) Interest rates are fixed
Answer: a) A single bank cannot meet the borrower’s needs
10.The Basel Accords primarily focus on:
a) Standardizing capital requirements for banks
b) Regulating stock markets
c) Fixing exchange rates
d) Reducing transaction costs
Answer: a) Standardizing capital requirements for banks
International Bond Market
11.Eurobonds are best defined as:
a) Bonds issued in the issuer’s home currency
b) Bonds sold in countries other than the currency’s home country
c) Bonds denominated in euros
d) Short-term debt securities
Answer: b) Bonds sold in countries other than the currency’s home country
12.A key feature of Eurobonds is:
a) Fixed exchange rates
b) Bearer format
c) Government backing
d) Short maturity
Answer: b) Bearer format
International Stock Markets
13.Why might an MNC issue stock in a foreign market?
a) To avoid exchange rate risk
b) To enhance global recognition
c) To reduce dividend payments
d) To bypass Basel regulations
Answer: b) To enhance global recognition
14.Investing in foreign stocks for diversification helps reduce:
a) Currency risk
b) Country-specific market risk
c) Transaction costs
d) Regulatory risk
Answer: b) Country-specific market risk
Derivatives
15.A forward contract locks in:
a) The spot rate
b) The futures rate
c) The forward rate
d) The cross rate
Answer: c) The forward rate
16.Currency options differ from futures because they:
a) Are standardized
b) Require physical delivery
c) Provide flexibility (no obligation to exercise)
d) Trade on exchanges only
Answer: c) Provide flexibility
Answer Key
1. b | 2. c | 3. a | 4. c | 5. a | 6. b | 7. b | 8. d | 9. a | 10. a | 11. b | 12. b | 13. b | 14. b |
15. c | 16. c
Foreign Exchange Market
17.The Gold Standard (1876–1913) tied currency values to:
a) Silver reserves
b) Government bonds
c) Gold reserves
d) Oil prices
Answer: c) Gold reserves
18.Under the Smithsonian Agreement, exchange rates were allowed to fluctuate by:
a) 1%
b) 2.25%
c) 5%
d) 10%
Answer: b) 2.25%
19.Which of the following is a feature of the spot market?
a) Transactions occur at a future date
b) Immediate currency exchange
c) Requires collateral
d) Only for government use
Answer: b) Immediate currency exchange
20.Memphis Co. uses forward contracts to hedge its payables in euros. This locks
in the:
a) Spot rate
b) Futures rate
c) Forward rate
d) Cross rate
Answer: c) Forward rate
International Money Market
21.A key reason for borrowing in a foreign currency with a lower interest rate is to:
a) Avoid regulatory scrutiny
b) Reduce financing costs
c) Increase political risk
d) Eliminate exchange rate risk
Answer: b) Reduce financing costs
22.The Asian money market is centered in:
a) Tokyo and Shanghai
b) Hong Kong and Singapore
c) Mumbai and Dubai
d) Sydney and Jakarta
Answer: b) Hong Kong and Singapore
International Credit Market
23.The Single European Act allowed banks in the EU to:
a) Fix exchange rates
b) Expand freely across EU countries
c) Issue government bonds
d) Avoid Basel regulations
Answer: b) Expand freely across EU countries
24.In a syndicated loan, the lead bank is responsible for:
a) Printing currency
b) Negotiating terms with the borrower
c) Setting global interest rates
d) Regulating stock markets
Answer: b) Negotiating terms with the borrower
International Bond Market
25.Eurobonds are often issued as bearer bonds, meaning:
a) They are registered to a specific owner
b) Ownership is anonymous
c) They require collateral
d) They have fixed exchange rates
Answer: b) Ownership is anonymous
26.A U.S. firm issues bonds in Japan denominated in yen. This is an example of:
a) Domestic bond
b) Eurobond
c) Municipal bond
d) Convertible bond
Answer: b) Eurobond
International Stock Markets
27.Dow Chemical Co. issues stock in Japan to:
a) Avoid Japanese taxes
b) Enhance its global recognition
c) Reduce dividend payments
d) Bypass U.S. regulations
Answer: b) Enhance its global recognition
28.Investing in foreign stocks for diversification primarily reduces:
a) Currency risk
b) Country-specific market risk
c) Transaction costs
d) Liquidity risk
Answer: b) Country-specific market risk
Derivatives
29.Currency futures differ from forward contracts because futures:
a) Are traded over-the-counter
b) Are standardized and exchange-traded
c) Have no expiration date
d) Require physical delivery
Answer: b) Are standardized and exchange-traded
30.A currency call option gives the holder the right to:
a) Sell a currency at a set price
b) Buy a currency at a set price
c) Exchange currencies at the spot rate
d) Avoid transaction costs
Answer: b) Buy a currency at a set price
Answer Key
17.c | 18. b | 19. b | 20. c | 21. b | 22. b | 23. b | 24. b | 25. b | 26. b | 27. b | 28. b | 29. b
| 30. b
Foreign Exchange Market
1. The interbank market primarily involves:
a) Retail currency exchanges
b) Trading between commercial banks
c) Government bond transactions
d) Stock market hedging
Answer: b)
2. If the direct exchange rate for EUR/USD increases from 1.10 to 1.15, the euro
has:
a) Appreciated
b) Depreciated
c) Stabilized
d) None of the above
Answer: a)
3. A cross exchange rate is used to determine the value of:
a) USD relative to gold
b) Two non-dollar currencies
c) Cryptocurrencies
d) Fixed-rate bonds
Answer: b)
International Money Market
4. Eurocurrency refers to:
a) Currency used only in Europe
b) Deposits held in banks outside the currency’s home country
c) The official currency of the EU
d) Short-term government bonds
Answer: b)
5. A key advantage of the Asian dollar market is:
a) Lower transaction costs for European firms
b) Serving businesses in Asian time zones
c) Fixed exchange rates
d) Avoiding Basel regulations
Answer: b)
International Credit Market
6. The Basel III Accord focuses on:
a) Reducing currency risk
b) Increasing bank capital requirements
c) Fixing exchange rates
d) Regulating stock markets
Answer: b)
7. A floating-rate loan in the Eurocredit market is typically tied to:
a) Gold prices
b) LIBOR
c) Inflation rates
d) GDP growth
Answer: b)
International Bond Market
8. A Eurobond denominated in USD but issued in Germany is an example of:
a) Domestic bond
b) Foreign bond
c) Eurobond
d) Municipal bond
Answer: c)
9. Bearer bonds are advantageous because they:
a) Guarantee fixed returns
b) Allow anonymous ownership
c) Eliminate currency risk
d) Are government-backed
Answer: b)
International Stock Markets
10.A U.S. firm listing its stock on the Tokyo Stock Exchange primarily aims to:
a) Avoid Japanese taxes
b) Attract Japanese investors
c) Hedge currency risk
d) Reduce dividend payouts
Answer: b)
11.Diversifying a portfolio with foreign stocks reduces:
a) Systemic risk
b) Country-specific risk
c) Inflation risk
d) Liquidity risk
Answer: b)
Derivatives
12.A currency futures contract is:
a) Customizable and traded over-the-counter
b) Standardized and exchange-traded
c) Only for long-term hedging
d) Used solely by governments
Answer: b)
13.A currency put option allows the holder to:
a) Buy a currency at a fixed rate
b) Sell a currency at a fixed rate
c) Avoid transaction costs
d) Lock in the spot rate
Answer: b)
Answer Key
Question Answer
1 b
2 a
3 b
4 b
5 b
6 b
7 b
8 c
9 b
10 b
11 b
12 b
13 b
