Q&A Hero

Q: In the options market, a ________ gives the right to buy currency and a ________ gives the right to sell. a. Flat option, put option b. Put option, flat option c. Call option, put option d. Put option, call option

Q: Which of the following features describe the forward market for foreign exchange? I. Tailored size contracts II. Small amount contracts III. Tailored maturities IV. Large amount contracts a. II only b. IV only c. I, II, and III d. I, III, and IV

Q: Which of the following features describe the futures market for foreign exchange? I. Tailored size contracts II. Small amount contracts III. Tailored maturities IV. Large amount contracts a. II only b. IV only c. I, II, and III d. I, III, and IV

Q: Which of the following features describe the futures market for foreign exchange? I. Fixed contracts II. Tailored size contracts III. Fixed maturities IV. Can be resold a. I only b. II only c. I and IV d. I, II, and IV

Q: A strike price is the price where: a. A futures contract reaches maturity. b. The owner of an options contract can transact. c. The bank sets as an out-of-bounds in contract negotiations. d. All currencies are brought to a standardized price.

Q: One advantage of the forward exchange market is: a. That no buying/selling of the currency is needed until a specified date in the future. b. The use of fixed contracts. c. The initial deposit allows for further leveraging. d. That contracts deal only in small amounts.

Q: The process of matching the liability created by borrowing foreign currencies with the asset created by lending domestic currency by commercial banks is known as ________ the foreign exchange risk. a. Capitalizing b. Pegging c. Drifting d. Hedging

Q: ________ refers to buying and selling currencies to be delivered at a future date. a. The currency swap market b. The forward market c. The default swap market d. The options market

Q: When the forward price of a currency is equal to the spot price, it is sold at a forward ________. a. Premium b. Discount c. Flat d. Trade

Q: An American firm has just bought merchandise from a British firm for 50,000 on terms of 90-day payment. This firm has purchased a 3-month call option on 50,000 pounds at a strike price of $1.7 per pound and a premium cost of $0.02 per pound. On the day the option matures, the spot exchange rate is $1.8 per pound. What will be the cost of the option in U.S. dollars? a. $1000 b. $10 c. $85,000 d. $5,000

Q: An American firm has just bought merchandise from a British firm for 50,000 on terms of 90-day payment. This firm has purchased a 3-month call option on 50,000 pounds at a strike price of $1.7 per pound and a premium cost of $0.02 per pound. On the day the option matures, the spot exchange rate is $1.8 per pound. What will be the value of the pound payable in U.S. dollars, if the U.S. firm exercises the option? a. $91,000 b. $86,000 c. $85,000 d. $81,000

Q: Which of the following is the difference between foreign currency options and futures? a. Options leave a buyer with the choice of exercising or not exercising; whereas the futures require a mandatory delivery. b. Options require a mandatory delivery; whereas the futures leave a buyer with the choice of exercising or not exercising. c. Options require daily cash settlements from contract holders; while the futures do not require any daily cash settlements. d. Options do not require any daily cash settlements; while the futures require daily cash settlements from contract holders.

Q: If you hold the futures contract until September 15th and the spot rate for pounds on September 15th is $1.67 per pound, you will: a. not exercise the futures contract. b. lose on your position by $1,250. c. gain on your position by $1,250. d. break even by the amount of the margin.

Q: You purchase a futures contract for September delivery (September 15th) of 62,500 pounds on March 15th. The pound futures exchange rate is $1.65 per pound. The bank has a margin requirement of 2 percent.When the futures contract matures in September the spot rate is $1.67 per pound. How much will you have to pay when the futures contract matures?a. $103,125b. $104,375c. $105,187.5d. $106,462.5

Q: A call option with a strike price less than the current spot price is said to be _____. a. non-exercisable b. in-the-money c. out-of-the-money d. at-the-money

Q: A put option on Japanese yen is written with a strike price of 95.00/$. Which spot exchange rate will maximize your profit if you choose to exercise the option? a. 85.00/$ b. 90.00/$ c. 100.00/$ d. 115.00/$

Q: Unlike the trade balance of exports and imports, the balance of payments equilibrium has a zero balance at all times.

Q: The Algerian government receives $1,000,000 worth of seed from the U.S. government as a gift. This action is recorded as a $1,000,000 debit to the U.S. merchandise account.

Q: The current account shows international transactions that involve currently produced goods and services.

Q: Investment income, unilateral payments, and the value of trade of merchandise and services define the current account.

Q: In the balance of payments debits are recorded as negative entries and credits are recorded as positive entries.

Q: A decrease in the U.S.-owned deposit in foreign banks is a(n) ________ to the U.S. capital. a. Credit to the private capital account b. Debit to the private capital account c. Credit to the official capital account d. Debit to the official capital account

Q: Because foreigners hold a greater claim to U.S. assets than U.S. residents to foreign assets, U.S. is a ________. a. Net creditor b. Trade creditor c. Trade debtor d. Net debtor

Q: What kind of currency exchange system will prevent the balance of payments from being automatically balanced? a. Monetary unions b. Fixed exchange rate c. Floating d. Managed floating

Q: Current account deficits are offset by capital account ________. a. Assets b. Revenues c. Surpluses d. Imports

Q: For unfair trade to be a reasonable explanation for the U.S. trade deficit then it is reasonable that a. Foreign countries must have simultaneously increased trade protection in 1982. b. U.S. manufacturing must have experienced a sharp decline in the years preceding 1982. c. Foreign interest rates must have decreased the value of the U.S. dollar in 1982. d. Foreign countries must have simultaneously reduced trade protection in 1982.

Q: Which of the following is not a method to restore a balance of payments equilibrium in a surplus country? a. Government mandated quotas b. Accumulate international reserves c. Allow the use of flexible exchange rates d. Price controls

Q: Which of the following is an argument made to explain the large U.S. trade deficit in the 1980s? a. Deflation in the U.S. dollar b. Inflation in the U.S. c. Government budget deficit d. Government budget surplus

Q: Which of the following is an example of an outflow in the U.S. capital account? a. A foreign resident purchases a U.S. made car from a foreign dealer. b. A U.S. firm gives 90 days for a $1,000,000 note to be paid off by a French importer of U.S. goods. c. A U.S. firm pays salaries to employees based in Paris. d. A foreign firm receives a payment for exports from a U.S. firm.

Q: A Belgian company pays $100,000 to a consulting company in Chicago for a consulting report. This causes a: a. Credit in the U.S. investment income b. Debit in the U.S. investment income c. Credit in U.S. services d. Debit in U.S. services

Q: A U.S. citizen takes a cruise on a Norwegian cruise line to Canada causes a: a. Credit in U.S. services b. Credit to the U.S. unilateral transfers c. Credit in the U.S. private capital account d. Debit in the U.S. private capital account

Q: Capital account transactions include: I. Foreign purchases of U.S. stocks II. Goods imports III. Official financial transactions IV. Changes in U.S. bank claims on foreign banks a. I only b. II only c. I and IV d. I, III, and IV

Q: A U.S. resident receives $1,000 in interest from French bonds he owns causes a: a. Credit to service b. Debit to service c. Credit to investment income d. Debit to investment income

Q: A U.S. gift of wheat to a Nicaragua causes a: a. Credit in the U.S. merchandise account b. Credit in the U.S. unilateral transfers c. Credit in the U.S. private capital account d. Debit in the U.S. private capital account

Q: The current account balance measures all of the following except: a. Foreign cash payments b. Goods imports and goods exports c. Net receipts of investment income d. Unilateral transfers

Q: In September, 2005, exports of goods from the U.S. decreased $3.3 billion to $73.4 billion, and imports of goods increased $3.8 billion to $144.5 billion. This increased the deficit in: a. The balance of payments b. The financial account. c. The current account. d. Unilateral transfers.

Q: The United States, Germany, and China are examples of net creditor nations, where the country owes more to the rest of the world than it is owed.

Q: The German government donates $100,000 worth of vaccine to Tanzania. This action is recorded as a $100,000 debit to the German unilateral transfers.

Q: A trade surplus occurs when the current account is greater than the capital account.

Q: Bank claims and liabilities, security purchases, direct investments are examples of items found in the capital account.

Q: The double-entry bookkeeping for the balance of payments tracks tariffs and currency exchanges.

Q: What is a country called if its accumulated capital account balances results in it owing more than it is owed? a. Complete debtor b. Complete creditor c. Net debtor d. Net creditor

Q: Remittances by foreigners in the U.S., pension paid and aid offered by the U.S. to its citizens living abroad are examples of: a. Reserve asset transfers b. Investment income c. Export of services d. Unilateral transfers

Q: The U.S. subsidiary of a South Korean company pays dividends to its parent company in South Korea causes a: a. Credit in the U.S. investment income b. Debit in the U.S. investment income c. Credit in U.S. services d. Debit in U.S. services

Q: A U.S. car company builds a factory in Mexico causes a: a. Debit in U.S. services b. Debit in the U.S. unilateral transfers c. Debit in the U.S. private capital account d. Credit in U.S. private capital account

Q: A foreign resident buys shares of in a U.S. company stock in the New York Stock Exchange. a. Credit in U.S. services b. Credit to the U.S. unilateral transfers c. Credit in the U.S. private capital account d. Debit in U.S. services

Q: A Japanese store buys Apple iPods shipped from the U.S. causes a: a. Credit in the U.S. merchandise account b. Debit in the U.S. merchandise account c. Credit to U.S. investment income d. Debit to U.S. investment income

Q: The ________ measures changes in financial assets held by foreign monetary agencies and official reserve asset transactions. a. Monetary exchange board b. Unilateral account balance. c. Official settlements balance. d. Currency balance sheet.

Q: Which of the following is considered a capital outflow? a. A sale of U.S. financial assets to a foreign buyer. b. A loan from a U.S. bank to a foreign borrower. c. A purchase of foreign financial assets by a U.S. buyer. d. A donation of $100,000 worth of wheat to Nicaragua

Q: Which of the following is considered a capital inflow? a. A sale of U.S. financial assets to a foreign buyer. b. A loan from a U.S. bank to a foreign borrower. c. A purchase of foreign financial assets by a U.S. buyer. d. A U.S. citizens repayment of a loan from a foreign bank.

Q: A U.S. gift of wheat to a Nicaragua causes a: a. Debit in the U.S. merchandise account b. Debit in the U.S. unilateral transfers c. Debit in the U.S. private capital account d. Credit in the U.S. private capital account

Q: A foreign resident increasing her holdings of a U.S. financial asset causes a: a. Credit in the U.S. merchandise account b. Debit in the U.S. current account c. Credit in the U.S. private capital account d. Debit in the U.S. private capital account

Q: A U.S. resident increasing her holdings of a foreign financial asset causes a: a. Credit in the U.S. current account b. Debit in the U.S. current account c. Credit in the U.S. capital account d. Debit in the U.S. capital account

Q: Unilateral payments include pensions, private transfers and ________. a. Demand deposits b. Foreign aid c. Tradable goods d. Tradable services

Q: Which of the following categories generally has a deficit for the U.S.? a. Investment income b. Unilateral transfers c. Services d. Balance of payments

Q: The net value of flows of goods, services, investment income, and unilateral transfers is called the: a. Capital account balance b. Current account balance c. Merchandise account balance. d. Official settlements balance.

Q: If imports exceed exports, then: a. private saving exceeds public saving. b. private saving plus public saving exceed domestic investment. c. private saving plus public saving minus domestic investment is negative. d. domestic investment is negative.

Q: Let Y be domestic income, C be consumption, I be investment, G be government spending and T be taxes. The private saving pluses public saving equal to: a. Y C T G b. Y I c. Y C T d. Y C G

Q: Let Y be domestic income, C be consumption, I be investment, G be government spending and T be taxes. The private saving is: a. Y C T G b. Y C I c. Y C T d. Y C G

Q: In the twin deficits hypothesis, to reduce a current account deficit, a country has to: a. increase domestic investment b. reduce private saving c. reduce government budget deficit d. All of the above are correct

Q: Which of the following is considered as a capital inflow to the U.S.? a. A sale of U.S. financial assets to a foreign buyer. b. A loan from U.S. bank to a foreign borrower. c. A purchase of foreign financial assets by a U.S. buyer. d. A U.S. company deposits $1 million in a bank account in Switzerland.

Q: The difference between the balance on current account and the balance on capital account is: a. the balance of payment b. statistical discrepancy c. the balance of trade d. official settlements balance

Q: Michael Phelps, the U.S. Olympic swimmer, spends $2,000 on traveling costs around England after the London Olympic game. This is counted as: a. Debit to services. b. Credit to services. c. Debit to unilateral transfer. d. Credit to unilateral transfer.

Q: If the residents of a country receive money from their relatives living abroad, it will be counted as: a. credit in the current account b. debit in the current account c. credit in the capital account d. debit in the capital account

Q: Use the following information to answer questions 2-3. Table 3.1: Exports of goods and services 1000 Imports of goods and services 800 Net change in domestic-owned assets abroad 500 Net change in foreign-owned assets at home 400 Unilateral transfers received 100 Unilateral transfers paid 200 Investment income paid to foreigners 300 Investment income received from foreigners 400 Refer to Table 3.1. The balance on the capital account is: a. + 900 b. +100 c. 0 d. 100

Q: The balance on current account includes all of the following items EXCEPT: a. merchandise exports minus merchandise imports b. exports of services minus imports of services c. income receipts minus income payments on investments d. changes in U.S. assets owned abroad and foreign assets owned in the U.S.

Q: Dollarization and currency boards are examples of exchange rate systems that provide relatively large independent monetary policy as compared to floating exchange rates.

Q: In general, the smaller the country is, the more likely it is to peg its exchange rate.

Q: A managed floating exchange rate is a market determined exchange system as long as rates stay between target zones as mandated by legislative commitments.

Q: The introduction of the Bretton Woods system meant that the Federal Reserve had to take an active role in managing currency exchange rates.

Q: An example of a fixed exchange rate was the gold standard.

Q: You have just received a capital allocation for $50 million from a family office to invest in real estate either domestically or overseas, your choice, but your performance will be measured against a global property index. What are your considerations?

Q: Why was the European Monetary System established? a. To establish a common currency (the euro). b. To peg all member currencies to the Swiss Franc. c. To maintain small exchange rate fluctuation among member countries. d. To unite the coal and steel workers in France and Germany

Q: The new peoples Republic of the Sahara is a former European colony with a history of political strife. Massive quantities of natural gas have been discovered and the capital city is undergoing explosive growth. You work at a private equity shop and your global alternative asset fund manager thinks this is a good time to enter the countrys property market. How do you get started?

Q: You work for a US major consulting firm and the partner in charge asks you to consider your companys first overseas property investment, an office building in a major European city to house your new headquarters. What factors should you consider in choosing a location?

Q: An example of an optimal currency area would be a. United States b. Southeast Asia c. Latin America d. Both A and C

Q: In order to provide mortgage financing which of the following is not required? a) Property and casualty insurance b) Title insurance c) First responders d) Rapid economic growth

Q: A pegged exchange rate is: I. Fixed to a currency or basket of currencies II. Responds to indicators (such as inflation differentials) III. May require intervention to maintain the target pegged rate a. I only b. III only c. I and III d. I, II, and III

Q: What exchange rate system allows for periodic intervention without fixing to any other foreign currency? a. Free floating b. Horizontal band c. Crawling peg d. Dollarization

Q: Access to foreign real estate investing can be achieved through all of the following except? a) a global property fund b) a cadestar c) a partnership with local developer d) publicly traded securities