1、Chapter 4 Forward Exchange and International Financial Investment1. _ a position exposed to rate risk is the act of reducing or eliminating a net asset or net liability position in the foreign currency. a. Hedgingb. Speculatingc. Investing ind. Buying2. _ is the act of taking a net asset position or
2、 a net liability position in some asset class. a. Hedgingb. Speculatingc. Investingd. Buying3. A _ exchange contract is an agreement to exchange one currency for another on some date in the future at a price set now. a. Spot domesticb. Forward domesticc. Spot foreignd. Forward foreign4. _ means comm
3、itting oneself to an uncertain future value of ones net worth in terms of home currency. a. Sellingb. Hedgingc. Speculatingd. Importing5. Assume you are a Chinese exporter and expect to receive $250,000 at the end of 60 days. You can remove the risk of loss due to a devaluation of the dollar by:a. S
4、elling dollars in the forward market for 60-day delivery.b. Buying dollars now and selling it at the end of 60 days.c. Selling the yuan equivalent in the forward market for 60-day delivery.d. Keeping the dollars in the United States after they are delivered to you.6. Assume you are an American impor
5、ter who must pay 500,000 euros at the end of 90 days when you receive 1,000 cases of French wine at your warehouse in New York. If you do not cover this transaction in the forward market, you face a risk of loss if the euro:a. Depreciates against the dollar.b. Appreciates against the dollar.c. Eithe
6、r appreciates or depreciates against the dollar.d. Is fixed.7. Assume you are an American importer who must pay 500,000 euros at the end of 90 days when you receive 1,000 cases of French wine at your warehouse in New York. If you do not hedge this transaction, you face exchange rate risk. The best w
7、ay to remove the risk of loss due to currency fluctuations is to:a. Buy 500,000 euros in the forward market for delivery in 60 days.b. Buy 500,000 euros now, hold them for 60 days, and then sell them at the current spot rate. c. Sell 500,000 euros in the forward market for delivery after 60 days.d.
8、Sell 500,000 euros now in the spot market.8. An import-export business that finds itself in a “short” foreign-currency position risks a financial loss if:a. Exports fall.b. Domestic currency appreciates.c. Domestic currency depreciates.d. Foreign currency depreciates.9. In a _ contract you can effec
9、tively lock in the price at which you buy or sell a foreign currency at a set date in the future. a. Securities spotb. Securities futuresc. Currency futuresd. Spot foreign exchange10. An investment is _ if it is fully hedged against exchange rate risk. a. Coveredb. Uncoveredc. Speculatived. Contract
10、ed11. Concerning the covering of exchange market risksassuming that a depreciation of the domestic currency is feared, one can say that there is an incentive for:a. Exporters to rush to cover their future needs.b. Importers to rush to cover their future needs.c. Both exporters and importers to rush
11、to cover their future needs.d. Neither exporters nor importers to rush to cover their future needs.12. If the spot price of the euro is $1.10 per euro and the 30-day forward rate is $1.00 per euro, and you believe that the spot rate in 30 days will be $1.05 per euro, you can maximize speculative gai
12、ns by:a. Buying euros in the spot market and selling the euros in 30 days at the future spot rate.b. Signing a forward foreign exchange contract to sell the euros in 30 days.c. Signing a forward foreign exchange contract to sell the dollars in 30 days.d. Buying dollars in the spot market and selling
13、 the dollars in 30 days at the future spot rate.13. For an investor who starts with dollars and wants to end up with dollars in the future, which of the following choices is an example of covered international investment?a. Sell dollars at the spot rate, invest the proceeds in foreign currency-denom
14、inated financial instruments, and sign a forward exchange contract to buy the foreign currency.b. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy dollars.c. Sell dollars at the spot rate, invest the
15、 proceeds in foreign currency-denominated financial instruments, and then buy dollars at the future spot rate.d. Buy a dollar-denominated financial asset.14. For an investor who starts with dollars and wants to end up with dollars in the future, which of the following choices is an example of hedgin
16、g?a. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy the foreign currency.b. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forw
17、ard exchange contract to buy dollars.c. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and then buy dollars at the future spot rate.d. Buy a dollar-denominated financial asset.15. The proportionate difference between the current forward exch
18、ange rate value of a currency and its current spot value is the _ premium.a. Investmentb. Spotc. Forwardd. Currency-option16. _ arbitrage is buying a countrys currency spot and selling that countrys currency forward, to make a net profit from the combination of the difference in interest rates betwe
19、en countries and the forward premium on the countrys currency. a. Covered interestb. Uncovered interestc. Covered currencyd. Uncovered currency17. Suppose the interest rate on 6-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year in the United States. If todays sp
20、ot price of the pound is $2.00 while the 6-month forward price of the pound is $1.98, by investing in U.K. treasury bills rather than U.S. treasury bills, and NOT covering exchange rate risk, U.S. investors earn an extra return for the 6 months of:a. 0.5 percent b. 1.5 percent c. 3.0 percent d. It i
21、s not possible to determine without additional information 18. If the expected uncovered interest differential is _, then the expected overall return favors uncovered investing in the foreign-denominated currency.a. Positiveb. Negativec. Zerod. Unchanged19. Consider covered investments between the U
22、nited States and Japan. If Japanese interest rates decrease, interest arbitrage operations will most likely result in a(n): a. Increase in the spot price of the yen. b. Increase in the forward price of the dollar. c. Sale of dollars in the forward market.d. Purchase of yen in the spot market.20. If
23、the forward premium on the dollar is zero while the interest rate on U.S. T-bills is 4% and interest rate on British T-bills is 6.5%, the covered interest differential is in favor of:a. Buying.b. Investing.c. The United Kingdom.d. The United States.21. If the dollar is at a forward premium against t
24、he British pound of 1%, while the interest rate on U.S. T-bills is 4% and the interest rate on British T-bills is 6.5%, an American investor who does not want to face exchange rate risk (but does want to make the highest possible returns) should:a. Invest in dollar-denominated assets.b. Invest in po
25、und-denominated assets.c. Forego use of the forward exchange rate market.d. Not move dollars to the United Kingdom.22. When uncovered interest parity holds:a. A currency is expected to appreciate by as much as its interest rate is lower than the interest rate in the other country.b. A currency is ex
26、pected to appreciate by as much as its interest rate is higher than the interest rate in the other countryc. A currency is expected to depreciate by as much as its interest rate is lower than the interest rate in the other countryd. The forward premium equals the interest rate differential.23. The i
27、nterest rate in the U.K. is 4% for 90 days, the current spot rate is $2.00/ and the forward rate is $1.96/. If the covered interest rate differential is about -1%, then the interest rate in the U.S. for 90 days would have to be:a. 7%b. 4%c. 3%d. 2%24. International Fisher Effect refers to the condition when:a. Covered differential equals zero.b. Expected uncovered differential equals zero.c. Uncovered interest parity holds.d. Both (b) and (c).
