IP. Unit 1

What is the main purpose of a foreign exchange market?

• To allow individuals to collect foreign currency

• To facilitate international trade and investment

• To control inflation in different countries

• To set fixed exchange rates between currencies

What does the abbreviation "FX" stand for?

• Foreign Exchange

• Financial Exchange

• Futures Exchange

• Funds Exchange

Which currency is considered the commodity currency in the exchange rate quotation £1 = US$1.4500?

• Japanese Yen

• US Dollar

• Euro

• Pound Sterling

How are exchange rates determined?

• By government

• Through a fixed formula

• By supply and demand in the FX market

• By the International Monetary Fund (IMF)

What is the most common way for individuals to convert foreign currency?

• Through the foreign exchange market directly

• By using a currency exchange kiosk at the airport

• By visiting a government currency conversion office

• By converting through their local bank

What are the limitations of forward markets for hedging exchange rate risk?

• They are only accessible to large corporations.

• They offer limited currency options.

• Contract sizes are generally large and maturities are short. 

• They require complex financial expertise.

What does a higher exchange-rate volatility lead to for risk-averse traders?

• Higher profits

• Lower costs

• Higher costs and less foreign trade

• More predictable trade benefits

The term currency in the quotation US$1 = ¥124.50 is:

• US Dollar

• Pound Sterling

• Japanese Yen

• Euro

A travel agency in the US is planning tours to Europe. They budget for their expenses in Euros (EUR). If the US dollar weakens against the Euro, what impact will this have on their tour costs?

• Their tour costs will decrease in Euros

• Their tour costs will remain the same in Euros

• Their tour costs will increase in Euros

Imagine a tourist from Japan is visiting Canada. They exchange their Japanese Yen (JPY) for Canadian Dollars (CAD) with an exchange rate quotation: JPY 0.0084 = CAD 1.00 , which currency acts as the commodity currency in this transaction?

• Japanese Yen (JPY)

• Canadian Dollar (CAD)