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AGB 302, Ch 10 Exam Questions and Answers 2024
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AGB 302, Ch 10 Exam Questions and Answers
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AGB 302, Ch 10 Exam Questions andAnswers
What happens in the _______________ can have a fundamental impact on the sales,
profits, and strategy of an enterprise - Answer -foreign exchange market
foreign exchange market - Answer -a market for converting the currency of one country
into that of another country; the lubricant that enables companies based in countries
that use different currencies to trade with each other; global network of banks, brokers,
and foreign exchange dealers connected by electronic communications systems
exchange rate - Answer -the rate at which one currency is converted into another
Two Functions of the foreign exchange market - Answer -1. to convert the currency of
one country into the currency of another
2. to provide some insurance against the risks that arise from volatile changes in
exchange rates, commonly referred to as foreign exchange risk
4 Main uses of Exchange Market for International Business - Answer -1. income from
licensing, exports, or foreign investments have to be converted to the home country
currency
2. to pay a foreign company for its products or services in its country's currency
3. to invest spare cash for short terms in money mar-kets
4. Currency speculation
Currency Speculation - Answer -involves the short-term movement of funds from one
currency to another in the hopes of profiting from shifts in exchange rates
Carry trade - Answer -a kind of speculation; involves borrowing in one currency where
interest rates are low and then using the proceeds to invest in another currency where
interest rates are high
hedging - Answer -When a firm insures itself against foreign exchange risk
The spot exchange rate is - Answer -the rate at which a foreign exchange dealer
converts one currency into another currency on a particular day; Ex: a tourist converting
dollars to pounds
, Spot exchange rates are reported . . . - Answer -on a real-time basis on many financial
websites
An exchange rate can be quoted in two ways: - Answer -1. as the amount of foreign
currency one U.S. dollar will buy
2. as the value of a dollar for one unit of foreign currency
Spot rates change . . . - Answer -continually, often on a minute-by-minute basis
(although the magnitude of changes over such short periods is usually small)
The value of currency in a spot exchange rate is determined by . . . - Answer -the
interaction between the demand and supply of that currency relative to the demand and
supply of other currencies
A forward exchange occurs when - Answer -two parties agree to exchange currency
and execute the deal at some specific date in the future
Forward exchange rates are quoted for how many days into the future? - Answer -30
days, 90 days, and 180 days into the future. In some cases, it is possible to get forward
exchange rates for several years into the future
When we say the dollar is selling at a discount on the 30-day forward market we mean .
. .? - Answer -$1 would buy less of the foreign currency with a forward exchange than
with a spot exchange
When we say the dollar is selling at a premium on the 30-day forward market we mean .
. .? - Answer -$1 would buy more of the foreign currency with a forward exchange than
with a spot exchange
Forward instruments account for how much of all foreign exchange transactions? Spot
exchanges? - Answer -almost two-thirds, one-third
currency swaps are - Answer -the simultaneous purchase and sale of a given amount of
foreign exchange for two different value dates; used when it is desirable to move out of
one currency into another for a limited period without incurring foreign ex-change risk
Currency Swaps are transacted between . . .? - Answer -international businesses and
their banks, between banks, and between governments
A common kind of currency swap - Answer -a spot against forward; making a spot
exchange to convert a lump of money into a foreign currency and then immediately
getting a 90 day forward exchange to convert back in the future
Advantage of Forward Exchange of Currency Swap - Answer -the company or person
knows at the end of the period how much money it will be getting
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