1. The world's largest foreign exchange B. most trading takes place over the phone.

trading center is C. most trading flows over Reuters and EBS

A. New York. platforms.
B. Tokyo. D. most trading flows through specialized
C. London. "broking" firms.
D. Hong Kong.
8. Intervention in the foreign exchange
2. On average, worldwide daily trading of market is the process of
foreign exchange is A. a central bank requiring the commercial
A. impossible to estimate. banks of that country to trade at a set price
B. $15 billion. level.
C. $504 billion. B. commercial banks in
D. $3.21 trillion. different countries coordinating
efforts in order to stabilize one
3. The foreign exchange market closes or more currencies.
A. Never. C. a central bank buying or selling its currency
B. 4:00 p.m. EST (New York time). in order to influence its value.
C. 4:00 p.m. GMT (London time). D. the government of a country prohibiting
D. 4:00 p.m. (Tokyo time). transactions in one or more currencies.

4. Most foreign exchange transactions are for 9. The standard size foreign exchange
A. intervention by central banks. transactions are for
B. interbank trades between international banks A. $10 million U.S.
or nonbank dealers. B. $1 million U.S.
C. retail trade. C. €1 million.
D. purchase of hard currencies

5. The difference between a broker and a 10. Consider a U.S. importer desiring to
dealer is purchase merchandise from a Dutch exporter
A. dealers sell drugs; brokers sell houses. invoiced in euros, at a cost of €512,100. The
B. brokers bring together buyers U.S. importer will contact his U.S. bank
and sellers, but carry no (where of course he has an account
inventory; dealers stand ready to denominated in U.S. dollars) and inquire
buy and sell from their about the exchange rate, which the bank
inventory. quotes as €1.0242/$1.00. The importer accepts
C. brokers transact in stocks and bonds; this price, so his bank will
currency is bought and sold through dealers. the importer's account in the amount of
D. none of the above
A. debit, $500,000
6. Most interbank trades are B. credit, €512,100
A. speculative or arbitrage transactions. C. credit, $500,000
B. simple order processing for the retail client. D. debit, €512,100
C. overnight loans from one bank to another.
D. brokered by dealers. 11. The current exchange rate is £1.00 =
$2.00. Compute the correct balances in
7. At the wholesale level Bank A's correspondent account(s) with
A. most trading takes place OTC between bank B if a currency trader employed at
individuals on the floor of the exchange. Bank A buys £45,000 from a currency
trader at bank B for $90,000 using its
correspondent relationship with Bank B. currency trader employed at Bank A buys
A. Bank A's dollar-denominated account at B €100,000 from a currency trader at bank B
will fall by $90,000. for $150,000 using its correspondent
B. Bank B's dollar-denominated account at A relationship with Bank B.
will rise by $90,000. A. Bank A's dollar-denominated account at B
C. Bank A's pound-denominated account at B will fall by $150,000.
will rise by £45,000. B. Bank B's dollar-denominated account at A
D. Bank B's pound-denominated account at A will fall by $150,000.
will fall by £45,000. C. Bank A's pound-denominated account at B
E. All of the above are correct will fall by €100,000.
D. Bank B's pound-denominated account at A
will rise by €100,000.
12. The current exchange rate is £1.00 = $2.00.
Compute the correct balances in Bank A's 14. The spot market
correspondent account(s) with bank B if a A. involves the almost-immediate purchase or
currency trader employed at Bank A buys sale of foreign exchange.
£45,000 from a currency trader at bank B for B. involves the sale of futures, forwards, and
$90,000 using its correspondent relationship options on foreign exchange.
with Bank B. C. takes place only on the floor of a physical
A. Bank A's dollar-denominated account at B exchange.
will rise by $90,000. D. all of the above.
B. Bank B's dollar-denominated account at A
will fall by $90,000. 15. Spot foreign exchange trading
C. Bank A's pound-denominated account at B A. accounts for about 5 percent of all foreign
will rise by £45,000. exchange trading.
D. Bank B's pound-denominated account at A B. accounts for about 20 percent of all foreign
will rise by £45,000. exchange trading.
C. accounts for about 33 percent of all foreign
13. The current exchange rate is €1.00 = $1.50. exchange trading.
Compute the correct balances in Bank A's D. accounts for about 70 percent of all foreign
correspondent account(s) with bank B if a exchange trading.

Spot Rate Quotations

16. Using the table shown, currency traders worldwide to
what is the most current both price and trade currencies
spot exchange rate shown against the U.S. dollar. In fact,
for British pounds? Use a 2007 BIS statistics indicate that
direct quote from a U.S. about
perspective. involves the U.S. dollar on one side
A. $1.61 = £1.00 of the transaction.
B. $1.60 = £1.00 A. 86 percent
C. $1.00 = £0.625 B. 75 percent
D. $1.72 = £1.00 C. 45 percent
D. 15 percent
17. Suppose that the current
exchange rate is €0.80 = $1.00. 22. It is common practice
The direct quote, from the U.S. among currency traders
perspective is worldwide to both price and
A. €1.00 = $1.25. trade currencies against the
B. €0.80 = $1.00. U.S. dollar. Consider a currency
C. £1.00 = $1.80. dealer who makes a market in 5
D. None of the above currencies against the dollar. If
he were to supply quotes for
each currency in terms of all of
18. Suppose that the current the others, how many quotes
exchange rate is €1.00 = $1.60. would he have to provide?
The indirect quote, from the U.S. A. 36
perspective is B. 30
A. €1.00 = $1.60. C. 60
B. €0.6250 = $1.00. D. 120
C. €1.60 = $1.00. E. None of the above
D. None of the above
23. The Bid price
A. is the price that the dealer has
just paid for something, his
19. Suppose that the current historical cost of the most recent
exchange rate is £1.00 = $2.00. trade.
The indirect quote, from the U.S. B. is the price that a dealer stands ready to pay.
perspective is C. refers only to auctions like eBay, not over the
A. £1.00 = $2.00. counter transactions with dealers.
B. £1.00 = $0.50. D. is the price that a dealer stands ready to sell
C. £0.50 = $1.00. at.
D. None of the above
24. Suppose the spot ask exchange rate, Sa($|
20. Indirect exchange rate quotations from £), is $1.90 = £1.00 and the spot bid exchange
the U.S. perspective are rate, Sb($|£), is $1.89 = £1.00. If you were to
A. the price of one unit of the foreign currency buy $10,000,000 worth of British pounds and
in terms of the U.S. dollar. then sell them five minutes later, how much of
B. the price of one U.S. dollar in the foreign your $10,000,000 would be "eaten" by the bid-
currency. ask spread?
A. $1,000,000
21. It is common practice among
B. $52,910.05 A. may want to widen his bid-ask spread by
C. $100,000 raising his ask price.
D. $52,631.58 B. may want to lower his bid price.
C. may want to lower his ask price.
D. none of the above

25. If the $/€ bid and ask prices are $1.50/€ 30. A dealer in British pounds who thinks
and $1.51/€, respectively, the corresponding that the pound is about to depreciate
€/$ bid and ask prices are A. may want to widen his bid-ask spread by
A. €0.6667 and €0.6623. raising his ask price.
B. $1.51 and $1.50. B. may want to lower his bid price and his ask
C. €0.6623 and €0.6667. price.
D. cannot be determined with the information C. may want to lower his ask price.
given. D. none of the above.

26. In conversation, interbank foreign

exchange traders use a shorthand 31. A dealer in pounds who thinks that the
abbreviation in expressing spot currency exchange rate is about to increase in
quotations. Consider a $/£ bid-ask quote volatility
of $1.9072-$1.9077. The "big figure", A. may want to widen his bid-ask spread.
assumed to be known to all traders is B. may want to decrease his bid-ask spread.
A. 1.9077 C. may want to lower his ask price.
B. 1 D. none of the above.
C. 1.90
D. 77

27. In conversation, interbank foreign

exchange traders use a shorthand
abbreviation in expressing spot currency
quotations. Consider a $/£ bid-ask quote
of $1.9072-$1.9077. The currency dealer
would likely quote that as .
A. 72-77
B. 77-72
C. 5 points
D. None of the above

28. In the Interbank market, the standard

size of a trade among large banks in the
major currencies is
A. for the U.S.-dollar equivalent of
$10,000,000,000.
B. for the U.S.-dollar equivalent of
$10,000,000.
C. for the U.S.-dollar equivalent of $100,000.
D. for the U.S.-dollar equivalent of $1,000.

29. A dealer in British pounds who thinks

that the pound is about to appreciate
 32. Using the table shown, what is the spot cross-exchange rate between pounds and euro?

A. €1.00 = £0.75
B. £1.33 = €1.00
C. £1.00 = €0.75
D. none of the above

33. The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 =
$1.00. What is the euro-yen cross rate? A. ¥125 = €1.00
B. ¥1.00 = €125
C. ¥1.00 = €0.80
D. None of the above

34. Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00. Calculate the
euro-pound exchange rate.
A. €1 = £1.60
B. €1 = £0.625
C. €2.50 = £1
D. €1 = £2.50

35. The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$. The AUD/SF cross
exchange rate is .
A. 0.7813
B. 2.0000
C. 1.2800
D. 0.3500
 36. Suppose you observe the following 38. Suppose you observe the following
exchange rates: €1 = $1.50; £1 = $2.00. exchange rates: €1 = $1.50; ¥120 = $1.00.
Calculate the euro-pound exchange rate. Calculate the euro-pound exchange rate.
A. €1.3333 = £1.00 A. ¥133.33 = €1.00
B. £1.3333 = €1.00 B. €1.00 = ¥180
C. €3.00 = £1 C. ¥80 = €1.00
D. €1.25 = £1.00 D. €1 = £2.50

37. Suppose you observe the following 39. Suppose you observe the following
exchange rates: €1 = $1.60; £1 = $2.00. exchange rates: €1 = $1.45; £1 = $1.90.
Calculate the euro-pound exchange rate. Calculate the euro-pound exchange rate.
A. €1.3333 = £1.00 A. €1.3103 = £1.00
B. £1.3333 = €1.00 B. £1.3333 = €1.00
C. €3.00 = £1 C. €2.00 = £1
D. €1.25 = £1.00 D. €3 = £1

40. What is the BID cross-exchange rate for

Swiss Francs priced in euro? Hint: Find the
price that a currency dealer will pay in euro
to buy Swiss francs. A. €0.5386/CHF
A. €0.5386/CHF
B. €0.5389/CHF
B. €0.5389/CHF
C. €0.5463/CHF
C. €0.5463/CHF
D. €0.5466/CHF
D. €0.5466/CHF

42. Find the no-arbitrage cross exchange rate.

The dollar-euro exchange rate is quoted as
$1.60 = €1.00 and the dollar-pound exchange rate
is quoted at $2.00 = £1.00. A. €1.25/£1.00
B. $1.25/£1.00
41. What is the ASK cross-exchange rate for C. £1.25/€1.00
Swiss Francs priced in euro? Hint: Find the D. €0.80/£1.00
price that a currency dealer will take in euro to
sell Swiss francs.
 43. What is the BID cross-exchange rate for pounds directly for Swiss francs.
Canadian dollars priced in euro? Hint: Find D. Both a) and b)
the price that a currency dealer will pay in
euro to buy Canadian dollars. A.
€0.6094/CAD 48. Including the transactions costs of the
B. €0.6104/CAD bid-ask spread, the euro-pound cross
C. €0.6181/CAD exchange rate for a customer who wants to
D. €0.6191/CAD sell euro and buy pounds can be computed
as
44. What is the ASK cross-exchange rate for A. Sb(£/€) = Sb($/€)  Sb(£/$)
Canadian dollars priced in euro? Hint: Find B. Sa(€/£) = Sa(€/$)  Sa($/£)
the price that a currency dealer will take in
euro to sell Canadian dollars. A.
€0.6094/CAD C. Sb(€/£) = Sb($/€) 
B. €0.6104/CAD
D. All of the above
C. €0.6181/CAD
D. €0.6191CAD 49. yen. The dollar-euro exchange rate is
quoted as $1.60 = €1.00 and the dollar-yen
exchange rate is quoted at $1.00 = ¥120.
45. Find the no-arbitrage cross exchange
How many yen will the customer get?
rate. The dollar-euro exchange rate is
A. ¥192,000,000
quoted as
B. ¥5,208,333
$1.60 = €1.00 and the dollar-yen exchange rate
C. ¥75,000,000
is quoted at $1.00 = ¥120. A. ¥192/€1.00
D. ¥5,208.33
B. €1.92/¥100
C. €1.25/¥1.00
D. €1.00/¥1.92

46. The euro-pound cross exchange rate

can be computed as: A. S(€/£) = S($/£)  S(€/
$)

B.

C.
D. all of the above

47. Suppose a bank customer wishes to

trade out of British pounds and into
Swiss francs.
A. In dealer jargon, this is a currency against
currency trade.
B. The bank will frequently handle such a trade
by selling British pounds for U.S. dollars and
then buying Swiss francs with U.S. dollars.
C. The bank would typically sell the British
 50. Suppose a bank customer with €1,000,000 exchange rate is quoted as $1.20 = €1.00 and
wishes to trade out of euro and into Japanese the dollar-pound exchange rate is quoted at
$1.80 = £1.00. If a bank quotes you a cross
Using the table above, what is the bid price of pounds in rate of £1.00 = €1.50 how much money can
terms of euro? an astute trader make?
A. No arbitrage is possible
A. €1.3371/£
B. $1,160,000
B. €1.3378/£
C. $500,000
C. £0.7475/€
D. $250,000
D. £0.7479/€
56. You are a U.S.-based treasurer with
51. Using the table above, what is the ask price of
$1,000,000 to invest. The dollar-euro
pounds in terms of euro? A. €1.3371/£
exchange rate is quoted as $1.60 = €1.00
B. €1.3378/£
and the dollar-pound exchange rate is
C. £0.7475/€
quoted at $2.00 = £1.00. If a bank quotes
D. £0.7479/€
you a cross rate of £1.00 = €1.20 how much
52. Using the table above, what is the bid money can an astute trader make?
price of euro in terms of pounds? A. €1.3371/£ A. No arbitrage is possible
B. €1.3378/£ B. $1,160,000
C. £0.7475/€ C. $41,667
D. £0.7479/€ D. $40,000

53. Using the table above, what is the ask 57. You are a U.S.-based treasurer with
price of euro in terms of pounds? A. €1.3371/£ $1,000,000 to invest. The dollar-euro
B. €1.3378/£ exchange rate is quoted as $1.60 = €1.00 and
C. £0.7475/€ the dollar-pound exchange rate is quoted at
D. £0.7479/€ $2.00 = £1.00. If a bank quotes you a cross
rate of £1.00 = €1.20 how can you make
54. Suppose you observe the following exchange money?
rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00. Starting A. No arbitrage is possible
with $1,000,000, how can you make money? B. Buy euro at $1.60/€, buy £ at €1.20/£, sell £
A. Exchange $1m for £625,000 at £1 = $1.60. Buy at $2/£
€1,250,000 at €2 = £1.00; trade for C. Buy £ $2/£, buy € at €1.20/£, sell € at $1.60/€
$1,062,500 at €1 = $.85.
B. Start with dollars, exchange for 58. The Singapore dollar—U.S. dollar (S$/$)
euros at €1 = $.85; exchange for pounds at spot exchange rate is S$1.60/$, the Canadian
€2.00 = £1.00; exchange for dollars at £1 = dollar—U.S. dollar (CD/$) spot rate is
$1.60. CD1.33/$ and the S$/CD1.15. Determine the
C. Start with euros; exchange for pounds; exchange triangular arbitrage profit that is possible if
for dollars; exchange for euros. you have $1,000,000.
D. No arbitrage profit is possible. A. $44,063 profit
B. $46,093 loss
55. You are a U.S.-based treasurer with C. No profit is possible
$1,000,000 to invest. The dollar-euro D. $46,093 profit
 D. usually less than or more than the spot price
59. You are a U.S.-based treasurer with more often than it is equal to the spot price.
$1,000,000 to invest. The dollar-euro exchange rate
is quoted as $1.50 = €1.00 and the dollar-pound 64. For a U.S. trader working in American
exchange rate is quoted at $2.00 = £1.00. If a bank quotes, if the forward price is higher than
quotes you a cross rate of £1.00 = €1.25 how can the spot price
you make money? A. the currency is trading at a premium in the
A. No arbitrage is possible. forward market.
B. Buy euro at $1.50/€, buy £ at €1.25/£, sell £ at $2/£. B. the currency is trading at a discount in the
C. Buy £ $2/£, buy € at €1.25/£, sell € at $1.50/€. forward market.
C. then you should buy at the spot, hold on to
60. Market microstructure refers to it and sell at the forward—it's a built-in
A. the basic mechanics of how a marketplace arbitrage.
operates. D. all of the above—it really depends if you're
B. the basics of how to make small (micro-sized) talking American or European quotes.
currency trades.
C. how macroeconomic variables such as GDP and
inflation are determined. 65. The forward market
D. none of the above A. involves contracting today for the future
purchase of sale of foreign exchange at the
spot rate that will prevail at the maturity of
61. A recent survey of U.S. foreign exchange the contract.
traders measured traders' perceptions about how B. involves contracting today for the future
fast news events that cause movements in exchange purchase of sale of foreign exchange at a
rates actually change the exchange rate. The survey price agreed upon today.
respondents claim that the bulk of the adjustment to C. involves contracting today for the right but
economic announcements regarding unemployment, not obligation to the future purchase of sale of
trade deficits, inflation, GDP, and the Federal funds foreign exchange at a price agreed upon today.
rate takes place within D. none of the above
A. ten seconds.
B. one minute. 66. The $/CD spot bid-ask rates are $0.7560-
C. five minutes. $0.7625. The 3-month forward points are
D. one hour. 12-16. Determine the $/CD 3-month forward
bid-ask rates.
62. The forward price A. $0.7548-$0.7609
A. may be higher than the spot price. B. $0.7572-$0.7641
B. may be the same as the spot price. C. $0.7512-$0.7616
C. may be less than the spot price. D. cannot be determined with the information
D. all of the above given

63. Relative to the spot price the forward

price will be
A. usually less than the spot price.
B. usually more than the spot price.
C. usually equal to the spot price.

67. Restate the following one-, three-, and six-month outright forward American term
 bid-ask quotes in forward points:

A.

B.

C.
D. None of the above
68. If one has agreed to buy foreign exchange A. Take a long position in a forward contract on
forward €1,000,000 at $1.50/€.
A. you have a short position in the forward contract. B. Take a short position in a forward contract on
B. you have a long position in the forward contract. €1,000,000 at $1.50/€.
C. until the exchange rate moves, you haven't made C. Buy euro today at the spot rate, sell them
money, so you're neither short nor long. forward.
D. you have a long position in the spot market. D. Sell euro today at the spot rate, buy them
forward.
69. The current spot exchange rate is $1.55/€ and
the three-month forward rate is $1.50/€. You enter into a 71. The current spot exchange rate is
short position on €1,000. At maturity, the spot exchange $1.45/€ and the three-month forward rate is
rate is $1.60/€. How much have you made or lost? $1.55/€. Based upon your economic forecast,
A. Lost $100 you are pretty confident that the spot
B. Made €100 exchange rate will be $1.50/€ in three
C. Lost $50 months. Assume that you would like to buy
D. Made $150 or sell €100,000. What actions would you
take to speculate in the forward market?
70. The current spot exchange rate is $1.55/€ and How much will you make if your prediction
the three-month forward rate is $1.50/€. Based on your is correct?
analysis of the exchange rate, you are confident that the A. Take a short position in a forward. If you're
spot exchange rate will be $1.52/€ in three months. right you will make $15,000.
Assume that you would like to buy or sell €1,000,000. Take a long position in a forward contract on
What actions do you need to take to speculate in the euro. If you're right you will make $5,000.
forward market? Take a short position in a forward contract on
 euro. If you're right you will make $5,000. B. Buy €1,000,000 forward for $1.50/€.
D. Take a long position in a forward contract on C. Wait three months, if your forecast is correct
euro. If you're right you will make $15,000. buy €1,000,000 at $1.52/€.
D. Buy €1,000,000 today at $1.55/€; wait three
72. Consider a trader who takes a long position months, if your forecast is correct sell
in a six-month forward contract on the euro. The €1,000,000 at $1.62/€.
forward rate is $1.75 = €1.00; the contract size is
€62,500. At the maturity of the contract the spot 74. The current spot exchange rate is
exchange rate is $1.65 = €1.00. $1.50/€ and the three-month forward rate is
A. The trader has lost $625. $1.55/€. Based on your analysis of the
B. The trader has lost $6,250. exchange rate, you are confident that the
C. The trader has made $6,250. spot exchange rate will be $1.62/€ in three
D. The trader has lost $66,287.88 months. Assume that you would like to buy
or sell €1,000,000. What actions do you need
73. The current spot exchange rate is to take to speculate in the forward market?
$1.55/€ and the three-month forward rate is What is the expected dollar profit from
$1.50/€. Based on your analysis of the speculation?
exchange rate, you are confident that the A. Sell €1,000,000 forward for $1.50/€.
spot exchange rate will be $1.62/€ in three B. Buy €1,000,000 forward for $1.55/€.
months. Assume that you would like to buy C. Wait three months, if your forecast is correct
or sell €1,000,000. What actions do you buy €1,000,000 at $1.62/€.
need to take to speculate in the forward D. Buy €1,000,000 today at $1.50/€; wait three
market? What is the expected dollar profit months, if your forecast is correct sell
from speculation? €1,000,000 at $1.62/€.
A. Sell €1,000,000 forward for $1.50/€.

75. Which of the following is correct?

A.

B.

C.
D. All of the above are correct

77. Which of the following are correct?

A.

B.
 C.
D. All of the above are correct

78. Which of the following are correct?

A.

B.

C.
D. All of the above are correct

79. When a currency trades at a premium in the The forward premium (discount) is
forward market A. the dollar is trading at an 8% premium to the
A. the exchange rate is more than one dollar (e.g. euro for delivery in 120 days.
€1.00 = $1.28). B. the dollar is trading at a 5% premium to the
B. the exchange rate is less than one dollar. Swiss franc for delivery in 120 days.
C. the forward rate is less than the spot rate. C. the dollar is trading at a 10% discount to the
D. the forward rate is more than the spot rate. euro for delivery in 120 days.
D. the dollar is trading at a 5% discount to the
80. When a currency trades at a discount in the euro for delivery in 120 days.
forward market
A. the forward rate is less than the spot rate. 83. The €/$ spot exchange rate is $1.50/€ and
B. the forward rate is more than the spot rate. the 90-day forward premium is 10 percent.
C. the forward exchange rate is less than one dollar Find the 90-day forward price.
(e.g. €1.00 = $0.928). A. $1.65/€
D. the exchange rate is less than it was yesterday. B. $1.5375/€
C. $1.9125/€
81. The SF/$ spot exchange rate is SF1.25/$ and D. None of the above
the 180 day forward exchange rate is SF1.30/$.
The forward premium (discount) is 84. The SF/$ spot exchange rate is SF1.25/$
A. the dollar is trading at an 8% premium to the and the 180 forward premium is 8 percent.
Swiss franc for delivery in 180 days. What is the outright 180 day forward
B. the dollar is trading at a 4% premium to the exchange rate?
Swiss franc for delivery in 180 days. A. SF1.30/$
C. the dollar is trading at an 8% discount to the B. SF1.35/$
Swiss franc for delivery in 180 days. C. SF6.25/$
D. the dollar is trading at a 4% discount to the Swiss D. None of the above
franc for delivery in 180 days.
85. The SF/$ 180-day forward exchange
rate is SF1.30/$ and the 180 forward
premium is 8 percent. What is the outright
82. The €/$ spot exchange rate is $1.50/€ and spot exchange rate?
the 120 day forward exchange rate is 1.45/€. A. SF1.30/$
 B. SF1.35/$ D. None of the above
C. SF1.25/$

86. Consider the following spot and forward rate dollar.

quotations for the Swiss franc? D. all of the above

89. As a rule, when the interest rate of the

foreign currency is greater than the interest
rate of the quoting currency,
A. the outright forward rate is less than the spot
exchange rate.
B. the outright forward rate is more than the
Which of the following is true: spot exchange rate.
A. The Swiss franc is definitely going to be worth C. the currency will trade at a premium in the
more dollars in six months. forward contract.
B. The Swiss franc is probably going to be worth D. none of the above
less in dollars in six months.
C. The Swiss franc is trading at a forward discount. 90. Bank dealers in conversations among
D. The Swiss franc is trading at a forward premium. themselves use a shorthand notation to quote
bid and ask forward prices in terms of
87. Consider the following spot and forward rate forward points. This is convenient because
quotations for the Swiss franc: A. forward points may change faster than spot
and forward quotes.
B. forward points may remain constant for
long periods of time, even if the spot rates
change frequently.
C. traders who are looking for violations of
covered interest arbitrage are less interested in
the actual spot and forward exchange rates, but
are interested in the premium or discount
Calculate the three-month forward premium in American differential measured in forward points.
terms. Assume 30-day months and 360-day years. D. both c) and d) are correct
A. 0.353.
B. 0.4235. 91. Bank dealers in
C. 0.1364. conversations among
D. 0.1412. themselves use a shorthand
notation to quote bid and ask
88. Swap transactions forward prices in terms of
A. involve the simultaneous sale (or purchase) of forward points. Complete the
spot foreign exchange against a forward purchase (or sale) following table:
of approximately an equal amount of the foreign currency.
B. account for about half of Interbank FX A. 1.9040-1.9047
trading. B. 1.9042-1.9049
C. involve trades of one foreign currency for C. 1.9032-1.9030
another without going through the U.S. D. none of the above
92. An exchange-traded fund (ETF) is B. the NYSE in New York.
A. the same thing as a mutual fund. C. the FX market.
B. a portfolio of financial assets in which shares D. none of the above.
representing fractional ownership of the fund
are sold and redeemed by the fund sponsor. 94. Nondollar currency transactions
C. a portfolio of financial assets in which shares A. are priced by looking at the price that must
representing fractional ownership of the fund exist to eliminate arbitrage.
trade on an organized exchange. B. allow for triangular arbitrage opportunities to
D. none of the above. keep the currency dealers employed.
C. are only for poor people who don't have
93. The largest and most active financial market dollars.
in the world is D. none of the above
A. the Fleet Street Exchange in London.
Chapter 05 - The Market for Foreign Exchange

5-22
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.