IB Chap 10

Currency fluctuations can make seemingly profitable trade and investment deals unprofitable and vice versa.

• True

• False

A(n) _____ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate. 

• follower strategy

•  interim strategy

• lead strategy

• lag strategy

The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values is known as: 

•  economic exposure.

• financial exposure.

• translation exposure.

• transaction exposure.

_____ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. 

• Countertrade

• Carry trade

• Dumping

• Capital flight

A currency is said to be freely convertible when: 

• its exchange rate with respect to other currencies is decided by the central bank of the country.

• residents alone are allowed to convert it into a foreign currency without any limitations.

• neither residents nor nonresidents are allowed to convert it into a foreign currency.

• both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it.

_____ uses price and volume data to determine past trends, which are expected to continue into the future. 

• Technical analysis

• Fundamental analysis

• Efficient market theory

• Value investing

Which of the following would a follower of the inefficient market school of thought agree with? 

• Companies would be better off investing in foreign exchange forecasting services.

• Forward exchange rates do the best possible job of forecasting future spot exchange rates.

• Companies can optimize their foreign exchange transactions by using forward markets.

• Forward rates reflect all available information about likely future changes in exchange rates.

Which of the following occurs when traders start moving as a herd in the same direction at the same time? 

• Fisher effect

• Bandwagon effect

• Arbitrage

• Decoupling of markets

It follows from the Fisher Effect that if the real interest rate is the same worldwide; any difference in interest rates between countries reflects differing expectations about ______. 

• foreign exchange rates

• inflation rates

• unemployment rates

• GDP growth rates

The _____ states that a country's "nominal" interest rate is the sum of the required "real" rate of interest and the expected rate of inflation over the period for which the funds are to be lent. 

• PPP theory

• efficient market theory

• law of one price

• Fisher Effect