MCQOPTIONS
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MCQOPTIONS
This section includes 40 Mcqs, each offering curated multiple-choice questions to sharpen your Economics knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
Which of the following is not a reason why Joe Smith (an American) might participate as a demander in the foreign exchange market ? |
| A. | his desire to open a bank account in Japan |
| B. | his desire to purchase an automobile produced domestically |
| C. | his desire to travel to Europe |
| D. | his desire to purchase Treasury bills issued by the British government |
| Answer» C. his desire to travel to Europe | |
| 2. |
Which financial instrument provides a buyer the right to purchase or sell a fixed amount of currency at a prearranged price, within a few days to a couple of years ? |
| A. | letter a credit |
| B. | foreign currency option |
| C. | cable transfer |
| D. | bill of exchange |
| Answer» C. cable transfer | |
| 3. |
Under a system of floating exchange rates the pound would depreciate in value if there occurs ? |
| A. | Price inflation in the United States |
| B. | an increase in U.S real income |
| C. | a decrease in the British money supply |
| D. | falling interest rates in Britain |
| Answer» E. | |
| 4. |
Under a system of floating exchange rates there is a general tendency for ? |
| A. | exchange rates to be insensitive to the differential rates of inflation between countries |
| B. | the currencies of relatively high-inflation countries to depreciate |
| C. | the currencies of relatively high inflation countries to appreciate |
| D. | the currencies of relatively low inflation countries to depreciate |
| Answer» C. the currencies of relatively high inflation countries to appreciate | |
| 5. |
The theory of international exchange that holds that exchange rates adjust to offset differences in countries inflation rates in the ? |
| A. | price feedback theory |
| B. | trade feedback theory |
| C. | J-curve theory |
| D. | purchasing power parity theory |
| Answer» E. | |
| 6. |
The supply of foreign currency tends to be ? |
| A. | upward sloping |
| B. | downward sloping |
| C. | vertical |
| D. | any of the above |
| Answer» B. downward sloping | |
| 7. |
The rise in value of one currency relative to another is ? |
| A. | a weakening of a currency |
| B. | A depreciation of a currency |
| C. | An appreciation of a currency |
| D. | a debasement of a currency |
| Answer» D. a debasement of a currency | |
| 8. |
The reduction or covering of foreign exchange risk is called ? |
| A. | hedging |
| B. | speculation |
| C. | intervention |
| D. | arbitrage |
| Answer» B. speculation | |
| 9. |
The real effective exchange rate for the U.S dollar ? |
| A. | reflects only the influences of merchandise or real trade on the dollar’s exchange value |
| B. | reflects only transactions in the currency futures market |
| C. | is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation? |
| D. | is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation? |
| Answer» D. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation? | |
| 10. |
The price of one country’s currency in terms of another country’s currency is the ? |
| A. | exchange rate |
| B. | balance of trade |
| C. | terms of trade |
| D. | currency valuation |
| Answer» B. balance of trade | |
| 11. |
The most widely traded currency in the foreign exchange market is the ? |
| A. | euro |
| B. | Chinese Yuan |
| C. | British pound |
| D. | U.S dollar |
| Answer» E. | |
| 12. |
The least common type of transaction in the foreign exchange is a ? |
| A. | forward transaction |
| B. | spot transaction |
| C. | swap transaction |
| D. | None of the above |
| Answer» B. spot transaction | |
| 13. |
The largest volume of foreign exchange trading takes place in ? |
| A. | China |
| B. | Germany |
| C. | United Kingdom |
| D. | USA |
| Answer» D. USA | |
| 14. |
The J-curve effect refers to the observation that ? |
| A. | GDP usually decreases before it increases after a currency depreciation |
| B. | the trade balance usually gets worse before it improves after a currency depreciation |
| C. | the trade balance usually gets better before it gets worse after a currency appreciation |
| D. | GDP usually decreases before it increases after a currency appreciation |
| Answer» C. the trade balance usually gets better before it gets worse after a currency appreciation | |
| 15. |
The franc is said to be selling at a _______ if the spot dollar price is $0.48 and the nine-month forward rate is $0.42 ? |
| A. | forward discount |
| B. | forward premium |
| C. | forward spread |
| D. | None of these |
| Answer» B. forward premium | |
| 16. |
The fall in value of one currency relative to another is ? |
| A. | a depreciation of a currency |
| B. | a strengthening of a currency |
| C. | a floating of a currency |
| D. | an appreciation of a currency |
| Answer» B. a strengthening of a currency | |
| 17. |
The exchange rate is kept the same across geographically separate markets by ? |
| A. | hedging |
| B. | speculation |
| C. | government regulation |
| D. | arbitrage |
| Answer» E. | |
| 18. |
The essential feature of a _______ is that it immediately fixed the rate at which a specified amount of one currency is to be delivered in exchange for a specific amount of another at a future date ? |
| A. | forward contract |
| B. | spot contract |
| C. | money contract |
| D. | bid contract |
| Answer» B. spot contract | |
| 19. |
The difference between bid (buying) rates and ask (selling) rates is called the ? |
| A. | profit |
| B. | arbitrage |
| C. | spread |
| D. | forward transaction |
| Answer» D. forward transaction | |
| 20. |
The agreements that were reached at the Bretton Woods conferences in 1944 established a system ? |
| A. | of essentially fixed exchange rates under which each country agreed to intervene in the foreign exchange market when necessary to maintain the agreed |
| B. | in which the value of currencies was fixed in terms of a specific number of ounces of gold, which in turn determined their values in international tra |
| C. | of floating exchange rates determined of the supply and demand of one nation’s currency relative to the currency of other nations |
| D. | That prohibited governments from intervening in the foreign exchange markets |
| Answer» B. in which the value of currencies was fixed in terms of a specific number of ounces of gold, which in turn determined their values in international tra | |
| 21. |
Riskless transactions to take advantage of profit opportunities due to a price differential or a yield differential in excess of transaction costs are called ? |
| A. | differential actions |
| B. | cash transaction |
| C. | arbitrage |
| D. | forward transactions |
| Answer» D. forward transactions | |
| 22. |
Investor engage in _____ when they move funds into foreign currencies in order to take advantage to interest rates abroad that are higher than domestic interest rates ? |
| A. | currency arbitrage |
| B. | interest arbitrage |
| C. | short positions |
| D. | long positions |
| Answer» C. short positions | |
| 23. |
In the early eighties, the Federal Reserve pursed a tight monetary policy. All else being equal. the impact of that policy was to interest rates in the United States relative to those in Europe and cause the dollar to _______ against European currencies? |
| A. | decrease; depreciate |
| B. | decrease; appreciate |
| C. | increase; depreciate |
| D. | increase; appreciate |
| Answer» E. | |
| 24. |
In a supply and demand diagram for Japanese yen, with the exchange rate in dollars per yen on the vertical axis, the demand schedule for yen is drawn sloping ? |
| A. | upward |
| B. | vertical |
| C. | downward |
| D. | horizontal |
| Answer» D. horizontal | |
| 25. |
In 1971, most countries ? |
| A. | adopted a new system of fixed exchange rates |
| B. | gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand |
| C. | adopted single internationally accepted currency whose use is limited to international transactions |
| D. | returned to the gold standard |
| Answer» C. adopted single internationally accepted currency whose use is limited to international transactions | |
| 26. |
If the exchange rate is 11 Mexican pesos per U.S dollar, then it takes _______ to buy 1 peso? |
| A. | $0.0909 |
| B. | $0.1002 |
| C. | $0.2826 |
| D. | $1.1024 |
| Answer» B. $0.1002 | |
| 27. |
If the Bank of England reduces the money supply to reduce inflation a floating exchange rate will aid the Bank of England in fighting inflation because ? |
| A. | as the money supply is decreased the interest rate will increase and the price of UK exports will rise and the Price of UK imports will fall |
| B. | as the money supply is decreased the interest rate will increase, and the price of UK exports will fall and the price of UK imports will rise |
| C. | as the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall. |
| D. | as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise |
| Answer» D. as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise | |
| 28. |
If the bank is selling francs for $0.45, then what is the implied franc price of the dollar ? |
| A. | 2.0 |
| B. | 1.999 |
| C. | 2.323 |
| D. | 2.222 |
| Answer» E. | |
| 29. |
If Sweden’s currency depreciates relative to Norway’s currency ? |
| A. | Norway’s export goods become more expensive to Norway’s residents |
| B. | Norway’s exports goods become cheaper to Sweden’s residents |
| C. | Sweden’s export goods become cheaper to Norway’s residents |
| D. | Sweden’s export goods become cheaper to Sweden’s residents |
| Answer» D. Sweden’s export goods become cheaper to Sweden’s residents | |
| 30. |
If a nation’s interest rates are relatively low compared to those of other countries then the exchange value of its currency will tend to ? |
| A. | depreciate under a system of fixed exchange rates |
| B. | depreciate under a system of floating exchange rates |
| C. | appreciate under a system of floating exchange rates |
| D. | appreciate under a system of floating fixed rates |
| Answer» C. appreciate under a system of floating exchange rates | |
| 31. |
Given the foreign currency market for the Swiss franc, the supply of franc slopes upward, because as the dollar price of the franc rises ? |
| A. | America’s demand for Swiss merchandise rises |
| B. | America’s demand for Swiss merchandise falls |
| C. | Switzerland’s demand for American merchandise rises |
| D. | Switzerland’s demand for American merchandise falls |
| Answer» D. Switzerland’s demand for American merchandise falls | |
| 32. |
Expansionary monetary policy ? |
| A. | tends to lead to an appreciation of a nation’s currency |
| B. | tends to lead to a depreciation of a nation’s currency |
| C. | usually has no effect on a currency’s exchange value |
| D. | tends to lead to a depreciation of the currencies of other nations |
| Answer» C. usually has no effect on a currency’s exchange value | |
| 33. |
Exchange rates that are determined by the unregulated forces of supply and demand are ? |
| A. | floating exchange rates |
| B. | pegged exchange rates |
| C. | managed exchange rates |
| D. | fixed exchange rates |
| Answer» B. pegged exchange rates | |
| 34. |
During the era of dollar appreciation from 1981 to 1985 a main reason why the dollar did not fall in value was ? |
| A. | flows of foreign investment into the United States |
| B. | rising price inflation in the United States |
| C. | a substantial decrease in U.S imports |
| D. | a substantial increase in U.S exports |
| Answer» B. rising price inflation in the United States | |
| 35. |
Currency speculation is _____ if speculators bet against market forces that cause exchange fluctuations, thus moderating such fluctuations ? |
| A. | destabilizing |
| B. | stabilizing |
| C. | inflationary |
| D. | deflationary |
| Answer» C. inflationary | |
| 36. |
An important feature of a _______ is that the holder has the right but not the obligation to buy or sell currency ? |
| A. | Swap |
| B. | foreign exchange arbitrage |
| C. | foreign exchange option |
| D. | futures market contract |
| Answer» D. futures market contract | |
| 37. |
All currencies other than the domestic currency of a given country are referred to as ? |
| A. | hard currency |
| B. | foreign exchange |
| C. | reserve currencies |
| D. | near monies |
| Answer» C. reserve currencies | |
| 38. |
A fiscal expansion in the UK ? |
| A. | has no predictable effect on the price of the pound sterling? |
| B. | does not affect the price of the pound sterling |
| C. | tends to appreciate the pound sterling |
| D. | tends to depreciate the pound sterling |
| Answer» D. tends to depreciate the pound sterling | |
| 39. |
A difference between forward and futures contracts is that ? |
| A. | forward contracts occur in a specific locations-for example, the Chicago Mercantile Exchange |
| B. | futures contracts have negotiable delivery dates |
| C. | forward contracts can be tailored in amount and delivery date to the need of importers of exporters |
| D. | futures contracts involve no brokerage fees or other transactions costs |
| Answer» D. futures contracts involve no brokerage fees or other transactions costs | |
| 40. |
A depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is ? |
| A. | constant |
| B. | inelastic |
| C. | elastic |
| D. | Unitary elastic |
| Answer» D. Unitary elastic | |