Which of the following is not a reason why Joe Smith (an American) might participate as a demander in the foreign exchange market ?

his desire to open a bank account in Japan

his desire to purchase an automobile produced domestically

his desire to purchase Treasury bills issued by the British government

Under a system of floating exchange rates the pound would depreciate in value if there occurs ?

Price inflation in the United States

a decrease in the British money supply

falling interest rates in Britain

Under a system of floating exchange rates there is a general tendency for ?

the currencies of relatively high inflation countries to appreciate

exchange rates to be insensitive to the differential rates of inflation between countries

the currencies of relatively high-inflation countries to depreciate

the currencies of relatively high inflation countries to appreciate

the currencies of relatively low inflation countries to depreciate

The real effective exchange rate for the U.S dollar ?

is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?

reflects only the influences of merchandise or real trade on the dollar’s exchange value

reflects only transactions in the currency futures market

is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?

is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?

The J-curve effect refers to the observation that ?

the trade balance usually gets better before it gets worse after a currency appreciation

GDP usually decreases before it increases after a currency depreciation

the trade balance usually gets worse before it improves after a currency depreciation

the trade balance usually gets better before it gets worse after a currency appreciation

GDP usually decreases before it increases after a currency appreciation

The agreements that were reached at the Bretton Woods conferences in 1944 established a system ?

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

of essentially fixed exchange rates under which each country agreed to intervene in the foreign exchange market when necessary to maintain the agreed

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

of floating exchange rates determined of the supply and demand of one nation’s currency relative to the currency of other nations

That prohibited governments from intervening in the foreign exchange markets

In 1971, most countries ?

adopted single internationally accepted currency whose use is limited to international transactions

adopted a new system of fixed exchange rates

gave up trying to fix exchange rates formally and began allowing them to be determined essentially by supply and demand

adopted single internationally accepted currency whose use is limited to international transactions

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 ?

as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise

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

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

as the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall.

as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise

If Sweden’s currency depreciates relative to Norway’s currency ?

Sweden’s export goods become cheaper to Sweden’s residents

Norway’s export goods become more expensive to Norway’s residents

Norway’s exports goods become cheaper to Sweden’s residents

Sweden’s export goods become cheaper to Norway’s residents

Sweden’s export goods become cheaper to Sweden’s residents

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 ?

appreciate under a system of floating exchange rates

depreciate under a system of fixed exchange rates

depreciate under a system of floating exchange rates

appreciate under a system of floating exchange rates

appreciate under a system of floating fixed rates

Given the foreign currency market for the Swiss franc, the supply of franc slopes upward, because as the dollar price of the franc rises ?

Switzerland’s demand for American merchandise falls

America’s demand for Swiss merchandise rises

America’s demand for Swiss merchandise falls

Switzerland’s demand for American merchandise rises

Switzerland’s demand for American merchandise falls

Expansionary monetary policy ?

usually has no effect on a currency’s exchange value

tends to lead to an appreciation of a nation’s currency

tends to lead to a depreciation of a nation’s currency

usually has no effect on a currency’s exchange value

tends to lead to a depreciation of the currencies of other nations

During the era of dollar appreciation from 1981 to 1985 a main reason why the dollar did not fall in value was ?

rising price inflation in the United States

flows of foreign investment into the United States

rising price inflation in the United States

a substantial decrease in U.S imports

a substantial increase in U.S exports

A fiscal expansion in the UK ?

tends to depreciate the pound sterling

has no predictable effect on the price of the pound sterling?

does not affect the price of the pound sterling

tends to appreciate the pound sterling

tends to depreciate the pound sterling

A difference between forward and futures contracts is that ?

futures contracts involve no brokerage fees or other transactions costs

forward contracts occur in a specific locations-for example, the Chicago Mercantile Exchange

futures contracts have negotiable delivery dates

forward contracts can be tailored in amount and delivery date to the need of importers of exporters

futures contracts involve no brokerage fees or other transactions costs

40 + Mcqs in Foreign Exchange for Economics in Economics Page 1 McqOptions

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.

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

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

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

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

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.

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

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

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

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

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

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

Explore topic-wise MCQs in Economics.

Which of the following is not a reason why Joe Smith (an American) might participate as a demander in the foreign exchange market ?

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 ?

Under a system of floating exchange rates the pound would depreciate in value if there occurs ?

Under a system of floating exchange rates there is a general tendency for ?

The theory of international exchange that holds that exchange rates adjust to offset differences in countries inflation rates in the ?

The supply of foreign currency tends to be ?

The rise in value of one currency relative to another is ?

The reduction or covering of foreign exchange risk is called ?

The real effective exchange rate for the U.S dollar ?

The price of one country’s currency in terms of another country’s currency is the ?

The most widely traded currency in the foreign exchange market is the ?

The least common type of transaction in the foreign exchange is a ?

The largest volume of foreign exchange trading takes place in ?

The J-curve effect refers to the observation that ?

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 ?

The fall in value of one currency relative to another is ?

The exchange rate is kept the same across geographically separate markets by ?

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 ?

The difference between bid (buying) rates and ask (selling) rates is called the ?

The agreements that were reached at the Bretton Woods conferences in 1944 established a system ?

Riskless transactions to take advantage of profit opportunities due to a price differential or a yield differential in excess of transaction costs are called ?

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 ?

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?

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 ?

In 1971, most countries ?

If the exchange rate is 11 Mexican pesos per U.S dollar, then it takes _______ to buy 1 peso?

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 ?

If the bank is selling francs for $0.45, then what is the implied franc price of the dollar ?

If Sweden’s currency depreciates relative to Norway’s currency ?

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 ?

Given the foreign currency market for the Swiss franc, the supply of franc slopes upward, because as the dollar price of the franc rises ?

Expansionary monetary policy ?

Exchange rates that are determined by the unregulated forces of supply and demand are ?

During the era of dollar appreciation from 1981 to 1985 a main reason why the dollar did not fall in value was ?

Currency speculation is _____ if speculators bet against market forces that cause exchange fluctuations, thus moderating such fluctuations ?

An important feature of a _______ is that the holder has the right but not the obligation to buy or sell currency ?

All currencies other than the domestic currency of a given country are referred to as ?

A fiscal expansion in the UK ?

A difference between forward and futures contracts is that ?

A depreciation of the dollar will have its most pronounced impact on imports if the demand for imports is ?

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

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