Name: Mona AlGannas Class: International Finance Date: 26 June 2012 ID: 200700691

Take Home Quiz 3

Multiple Choice

Identify the choice that best completes the statement or answers the question.
_b_ 1. Assume that a bank's bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid-ask percentage
spread is:
a. about 4.44%.
b. about 4.26%.
c. about 4.03%.
d. about 4.17%.

_a_ 2. The bid/ask spread for small retail transactions is commonly in the range of _______ percent; the
bid/ask spread for wholesale transactions is commonly in the range of _______ percent.
a. 3 to 7;.01 to .03
b. 2 to 5; 1 to 2
c. 10 to 15;.01 to .03
d. 1 to 2;.05 to .07

_a_ 3. According to the text, the forward rate is commonly used for:
a. hedging.
b. Eurocurrency transactions.
c. Eurocredit transactions.
d. Eurobond transactions.

_b_ 4. Assume a Japanese firm invoices exports to the U.S. in U.S. dollars. Assume that the forward rate
and spot rate of the Japanese yen are equal. If the Japanese firm expects the U.S. dollar to _______
against the yen, it would likely wish to hedge. It could hedge by _______ dollars forward.
a. depreciate; buying
b. depreciate; selling
c. appreciate; selling
d. appreciate; buying

_d_ 5. Which of the following is not true regarding the Bretton Woods Agreement?
a. It called for fixed exchange rates between currencies.
b. Governments intervened to prevent exchange rates from moving more than 1 percent above or below
their initially established levels.
c. The agreement lasted from 1944 until 1971.
d. Each country used gold to back its currency.
e. All of these are true regarding the Bretton Woods Agreement.

_d_ 6. A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the
yen in Fijian dollars (i.e., how many Fijian dollars do you need to buy a yen)?
a. 73.75.
b. 125.
c. 1.69.
d. 0.014.
e. none of these.
True/False
Indicate whether the statement is true or false.
False 7. A put option is the amount or percentage by which the existing spot rate exceeds the forward rate.

False 8. The forward rate is the exchange rate used for immediate exchange of currencies.

True 9. The ask quote is the price for which a bank offers to sell a currency.

False 10. The existence of imperfect markets has prevented the internationalization of financial markets.

True 11. Under the gold standard, each currency was convertible into gold at a specified rate, and the
exchange rate between two currencies was determined by their relative convertibility rates per ounce of
gold.

False 12. An investor engaging in a transaction whereby he or she contracts to purchase British pounds
one year from now is an example of a spot market transaction.

True 13. A cross exchange rate expresses the amount of one foreign currency per unit of another foreign
currency.

False 14. A currency put option provides the right, but not the obligation, to buy a specific currency at a
specific price within a specific period of time.

False 15. The strike price is also known as the premium price.

False 16. The interest rate commonly charged for loans between banks is called the cross rate.

False 17. The Bretton Woods Agreement is a 1988 accord between 12 countries to standardize banks'
capital requirements across countries; the resulting capital ratios are computed using risk-weighted assets.

True 18. A futures contract is a contract specifying a standard volume of a particular currency to be
exchanged on a specific settlement date.

True 19. If there is a large supply of savings relative to the demand for short-term funds, the interest rate
for that country will be relatively low.

False 20. If there is a strong demand to borrow a currency, and a low supply of savings in that currency,
the interest rate will be relatively low.

True 21. Large commercial banks play a major role in the international money market by accepting short-
term deposits in large amounts (such as the equivalent of $1 million or more) and in various currencies,
and channeling the money to corporations and government agencies that need to borrow those short-term
funds in the desired currencies.