Chapter 3 test bank 67 Helpful 1 Unhelpful University of California, Riverside BUS 138
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Course
BUS138
Institution
BUS138
1. Assume that a bank's bid rate on Swiss francs is $.45 and its ask
rate is $.47. Its bid-ask percentage spread is:
a. about 4.44%.
b. about 4.26%.
c. about 4.03%.
d. about 4.17%.
ANS: B
SOLUTION: Bid-ask percentage spread = ($.47 $.45)/$.47 = 4.26%
PTS: 1
2. Assume that a bank's bid ...
1. Assume that a bank's bid rate on Swiss francs is $.45 and its ask
rate is $.47. Its bid-ask percentage spread is:
a. about 4.44%.
b. about 4.26%.
c. about 4.03%.
d. about 4.17%.
2. Assume that a bank's bid rate on Japanese yen is $.0041 and its ask
rate is $.0043. Its bid-ask percentage spread is:
a. about 4.99%.
b. about 4.88%.
c. about 4.65%.
d. about 4.43%.
3. The bid/ask spread for small retail transactions is commonly in the
range of ____ percent.
a. 3 to 7
b. .01 to .03
c. 10 to 15
d. .5 to 1
ANS: A PTS: 1
4. ____ is not a factor that affects the bid/ask spread.
a. Order costs
b. Inventory costs
c. Volume
d. All of the above factors affect the bid/ask spread
ANS: D PTS: 1
5. The forward rate is the exchange rate used for immediate exchange of
currencies.
a. True
b. False
ANS: F PTS: 1
6. The ask quote is the price for which a bank offers to sell a
currency.
a. True
b. False
ANS: T PTS: 1
7. According to the text, the forward rate is commonly used for:
,a. hedging.
b. immediate transactions.
c. previous transactions.
d. bond transactions.
ANS: A PTS: 1
8. If a U.S. firm desires to avoid the risk from exchange rate
fluctuations, and it is receiving 100,000 in 90 days, it could:
a. obtain a 90-day forward purchase contract on euros.
b. obtain a 90-day forward sale contract on euros.
c. purchase euros 90 days from now at the spot rate.
d. sell euros 90 days from now at the spot rate.
ANS: B PTS: 1
9. If a U.S. firm desires to avoid the risk from exchange rate
fluctuations, and it will need C$200,000 in 90 days to make payment on imports
from Canada, it could:
a. obtain a 90-day forward purchase contract on Canadian dollars.
b. obtain a 90-day forward sale contract on Canadian dollars.
c. purchase Canadian dollars 90 days from now at the spot rate.
d. sell Canadian dollars 90 days from now at the spot rate.
ANS: A PTS: 1
10. Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is
equal to $.35. The value of the Peruvian Sol in Canadian dollars is:
a. about .3621 Canadian dollars.
b. about .3977 Canadian dollars.
c. about 2.36 Canadian dollars.
d. about 2.51 Canadian dollars.
ANS: B
SOLUTION: $.35/$.88 = .3977
PTS: 1
11. Which of the following is not true with respect to spot market
liquidity?
a. The more willing buyers and sellers there are, the more liquid a market
is.
b. The spot markets for heavily traded currencies such as the Japanese yen
are very liquid.
c. A currency's liquidity affects the ease with which an MNC can obtain or
sell that currency.
d. If a currency is illiquid, an MNC is typically able to quickly purchase
that currency at a reasonable exchange rate.
ANS: D PTS: 1
12. Forward markets for currencies of developing countries are:
a. prohibited.
b. less liquid than markets for developed countries.
c. more liquid than markets for developed countries.
d. only available for use by government agencies.
, ANS: B PTS: 1
13. A forward contract can be used to lock in the ____ of a specified
currency for a future point in time.
a. purchase price
b. sale price
c. A or B
d. none of the above
ANS: C PTS: 1
14. The forward market:
a. for euros is very illiquid.
b. for Eastern European countries is very liquid.
c. does not exist for some currencies.
d. none of the above
ANS: C PTS: 1
15. ____ is not a bank characteristic important to customers in need of
foreign exchange.
a. Quote competitiveness
b. Speed of execution
c. Forecasting advice
d. Advice about current market conditions
e. All of the above are important bank characteristics to customers in need
of foreign exchange.
ANS: E PTS: 1
16. The Basel II accord is focused on eliminating inconsistencies in
____ across countries.
a. capital requirements
b. deposit rates
c. deposit insurance
d. bank failure policies
ANS: A PTS: 1
17. The international money market primarily concentrates on:
a. short-term lending (one year or less).
b. medium-term lending.
c. long-term lending.
d. placing bonds with investors.
e. placing newly issued stock in foreign markets.
ANS: A PTS: 1
18. The international credit market primarily concentrates on:
a. short-term lending (less than one year).
b. medium-term lending.
c. long-term lending.
d. providing an exchange of foreign currencies for firms who need them.
e. placing newly issued stock in foreign markets.
ANS: B PTS: 1
19. The main participants in the international money market are:
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