Foreign Exchange Quiz

If the price of Chinese Yuan in terms of the U.S. dollars is $0.15 per yuan, then the price of U.S. dollars in terms of Chinese Yuan is:

• £1.50 per dollar.

• £6.00 per dollar.

• £6.67 per dollar.

• £3.60 per dollar.

_____ is set for an immediate trade. _____ exchange rate is set now for a currency trade that will take place sometime more than a few days in the future.

• forward exchange rate, spot exchange rate.

• spot exchange rate, forward exchange rate.

• pegged exchange rate, forward exchange rate.

• managed exchange rate, pegged exchange rate.

Suppose the dollar per pound exchange rate is $2 per pound while the dollar per Chinese Yuan exchange rate is 16 cents per yuan. From the given information we can conclude that the yuan per pound exchange rate is:

• 8 yuan per pound.

• 12.5 yuan per pound.

• too high.

• too low.

Rapid increases in the China exports of goods and services will result in a(n) _____ foreign currency and a(n) _____ the Chinses yuan in the foreign exchange market.

• increase in the demand for; increase in the supply of

• shortage of foreign currency; surplus of

• decrease in the supply of; decrease in the demand for

• increase in the supply of; increase in the demand for

In the foreign exchange market, what could be a possible consequence of an increase in the purchase of stocks of a Chinese firm, by the Japan residents?

• Yen will depreciate

• Demand for Yen will increase

• Yuan will depreciate

• Supply curve for Yen will shift to the left

In a floating exchange rate system, the Yen per dollar exchange rate is determined by:

• the American government.

• the interaction of the demand and supply of Yen in the foreign exchange market.

• the interaction of the demand for and supply of dollar-denominated assets in the stock market.

• the central bank of Japan.

The figure given below illustrates the market for British pounds. D£ and S£ are the demand and supply curves of the British pounds respectively. Who among the following groups will most likely benefit if the exchange rate is pegged at $2.50 per pound?

• The U.S. importers

• The British importers

• The British exporters

• The import-competing producers in the U.K.

Under the floating exchange rate system, a rise in the market price of a currency is called:

• devaluation.

• depreciation.

• appreciation.

• revaluation.

Suppose $1 = 0.85 euros in New York, 1 euro = 150 yen in Paris, and 1 yen = $0.008 in Tokyo.If you begin by holding $1, how could you profit from these exchange rates? What is your arbitrage profit per dollar initially traded?

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Suppose $1 = 0.85 euros in New York, 1 euro = 150 yen in Paris, and 1 yen = $0.008 in Tokyo.Identify the forces at work that will make the exchange rates consistent with each other in this situation. That is, what forces will lead to a situation in which no profitable arbitrage is possible?

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