Reference no: EM131412801

Question 1 : The _____ is the price at which a bank or financial services firm is willing to buy a specific currency.

1) exchange rate
2) foreign exchange
3) bid
4) ask
5) spread

Question 2  : Which of the following is true for the term "spot exchange rate"?

1) It refers to the technique of protecting against the potential losses that result from adverse changes in exchange rates.
2) It refers to the simultaneous and instantaneous purchase and sale of a currency for a profit.
3) It refers to the exchange rates that require immediate settlement with delivery of the traded currency.
4) It refers to the practice of buying and selling a currency with the expectation that the value will change and result in a profit.
5) It refers to the exchange rate between two currencies, neither of which is the official currency in the country in which the quote is provided.

Question 3 : A currency swap helps a firm to reduce its foreign exchange rate risk by simultaneously locking into the price for two transactions of a currency.

1) True
2) False

Question 4 : An organization makes use of the spot rate for making an immediate payment. The organization does not face the risk of the currency increasing or decreasing in value.

1) True
2) False

Question 5 : Non-finance companies prefer currency arbitrage and speculation while making investments, as they are not a risk and there are high gain methods of earning profits.

1) True
2) False

Question 6  :Which of the following is true for futures contracts?

1) They do not have standardized terms.
2) They have clearinghouses that guarantee the transactions.
3) They are private contracts between two parties.
4) The parties have a higher risk of defaulting on a contract.
5)The settlement of a futures contract occurs at the end of the contract.

Question 7 : The only reason a saver puts his cash at risk in the capital market is if the returns on the investment are greater than returns on holding risk-free assets.

1) True
2) False

Question 8 : A company operating globally must deal in foreign currencies, as it has to pay suppliers in other countries with a currency different from its home country's currency.

1) True
2) False

Question 9 : In the forward markets, foreign exchange is always quoted against the U.S. dollar.

1) True
2) False

Question 10  : A _____ is a system in which people, companies, and governments with an excess of funds transfer those funds to people, companies, and governments that have a shortage of funds.

1) forward contract
2) currency swap
3) currency conversion
4) capital market

Question 11 : If a European company opts to buy shirts from India with payment due in 60 days, it would be able to access the forward market to enter into a contract to lock in a future price for its payment. This would enable the European firm to protect itself against depreciation of the euro, which would require more euros to buy one Indian rupee. This contract is referred to as a(n):

1) option contract.
2) forward contract.
3) implicit contract.
4) voidable contract.
5) quasi-contract.

Question 12 : VCs are characterized primarily by their investments in smaller, high-growth firms that are considered riskier than traditional investments.

1) True
2) False

Question 13 : A movie production house makes a gross profit of $10 million from a movie release. If the company spends $4 million, including taxes and all expenses, then it has $6 million in profits. The company can invest the $6 million in the bonds of a company. Making such an investment is riskier than keeping the $6 million in a savings account. The financial officer hopes that over the long term, the investment will yield greater returns than cash holdings or interest on a savings account. This is an example of a form of:

1) direct finance.
2) indirect finance.
3) currency swap.
4) currency conversion.
5) cross rate.

Question 14 : Currency arbitrage refers to the:

1) conversion of one currency into another.
2) technique of protecting against the potential losses that result from adverse changes in exchange rates.
3) simultaneous and instantaneous purchase and sale of a currency for a profit.
4) price at which a bank or a financial services firm is willing to sell a currency.
5) practice of buying and selling a currency with the expectation that the value will change and result in a profit.

Question 15 : The indirect quote method follows the American terms for noting the base and quoted currency.

1) True
2) False

Question 16 : Companies use hedging as a way to protect themselves if there is a time lag between when they bill and receive payment from a customer.

1) True
2) False

Question 17  : Which of the following is true of equity securities?

1) It refers to the technique of protecting against the potential losses that result from adverse changes in exchange rates.
2) It refers to a loan from the investor to a company or government entity.
3) It refers to the simultaneous and instantaneous purchase and sale of a currency for a profit.
4) It refers to the ownership of a part of a company.

Question 18 : _____ refers to the money of one country denominated in the currency of another country or a group of countries.

1) Forward rate
2) Foreign exchange
3) Stock exchange
4) Equity swap
5) Loan

Question 19 : A _____ is a simultaneous buy and sell of a currency for two different dates.

1) spot rate
2) currency conversion
3) currency futures contract
4) currency swap
5) currency option

Question 20 : Speculators, who bet on the direction in which a currency's price will move, frequently employ:

1) forward contracts.
2) a bid.
3) an ask.
4) currency futures contracts.
5) a cross rate.

Question 21 : In an indirect quote, the domestic currency is a variable amount and the foreign currency is fixed at one unit.

1) True
2) False

Question 22  : Suppose we quote the number of Indian rupees required to purchase 1 U.S. dollar as INR 45 / USD 1. In this case, INR is referred to as:

1) currency hedging.
2) base currency.
3) currency speculation.
4) currency arbitrage.
5) quoted currency.