Title: Exchange Rates
Course: TEST Course

Q: People or firms use one currency to purchase another currency at the ________.
- international currency exchange
- foreign currency exchange
- foreign exchange market
A: foreign exchange market

Q: The foreign exchange market is where the purchase and sale
- of foreign goods takes place.
- of foreign stocks and bonds takes place
- of foreign currencies takes place.
A: of foreign currencies takes place.

Q: One of the following groups is not participating in the foreign exchange markets. Which one?
- Boston business firms trading goods and services with firms in France.
- International investors buying bonds issued by a German car manufacturing firm.
- International investors buying part-ownership of a mining operation in Afghanistan.
- An Iowa travel firm that arranges vacation tours for local seniors to Hawaii.
A: An Iowa travel firm that arranges vacation tours for local seniors to Hawaii.

Q: In the foreign exchange markets there are groups that are excluded from it. Which of the following scenarios highlights one of the excluded groups?
- New York law firms trading services with firms in Germany.
- International investors buying stocks of an Egyptian shipping company.
- Canadian investors purchasing ownership of a ranching company in Chile.
- An Ohio auto parts manufacturer that sells its goods to car manufacturers in Michigan.
A: An Ohio auto parts manufacturer that sells its goods to car manufacturers in Michigan.

Q: The most commonly traded currency in foreign exchange markets is the
- euro.
- Chinese yuan.
- British pound.
- U.S. dollar.
A: U.S. dollar.

Q: Which currency on the foreign exchange market is the most frequently traded?
- Swiss franc
- Japanese yen.
- Australian dollar
- U.S. dollar
A: U.S. dollar

Q: Aurora buys South African Rand in preparation for her visit to South Africa. This transaction takes place in the
- international trade market.
- international investment market.
- foreign exchange market.
A: foreign exchange market.

Q: If MassImports and Co needs Argentine Peso to purchase 1 million pesos worth of leather goods from Argentina, given an exchange rate of $1 = 20 Argentine Peso, it will need to exchange ________ on the foreign exchange market.
- $20 million
- $200,000
- $50,000
A: $50,000

Q: Foreign direct investment is the term used to describe purchases of firms in another country that involve ________.
- internationally traded goods across countries
- the exchange rate market
- taking a management responsibility
A: taking a management responsibility

Q: What term describes when business start up a new enterprise in a different country?
- portfolio investment
- foreign development
- foreign direct investment
A: foreign direct investment

Q: Portfolio investments are often made based on beliefs about how ________ are likely to move in the near future.
- interest rates
- foreign investment tax rates
- exchange rates or rates of return
A: exchange rates or rates of return

Q: Which should be considered when making portfolio investments?
- What the current interest rates are in the financial market.
- The performance of exchange rates or rates of return in the past.
- How likely the exchange rates or rates of return will move in the near future.
A: How likely the exchange rates or rates of return will move in the near future.

Q: A U.S. investment bank purchases stocks (shares) of Japanese firms on the Nikkei index. This describes a
- foreign direct investment.
- hedging.
- portfolio investment.
A: portfolio investment.

Q: If a U.S. car manufacturer opens a factory in Vietnam, this would be
- a portfolio investment.
- hedging.
- foreign direct investment.
A: foreign direct investment.

Q: U.S. Exporters and Co. are expecting to receive a large order in Japanese Yen in 6 months. As the value of the Yen may fall in the coming months, U.S. Exporters and Co. purchases a contract from an investment firms guaranteeing less than 3% difference between the current value of the Yen and its value in 6 months. U.S. Exporters and Co. is
- carrying out a direct investment.
- carrying out a portfolio investment.
- hedging.
A: hedging.

Q: U.S. Importers and Co. are expecting to place a large order in Chinese yuan in 6 months. As the value of the dollar may fall in the coming months, U.S. Importers and Co. purchases a contract from an investment firms guaranteeing less than 3% difference between the current value of the dollar and its value in 6 months. U.S. Importers and Co. is
- carrying out a direct investment.
- carrying out a portfolio investment.
- hedging.
A: hedging.

Q: Currency hedging is
- investing in foreign currency and profiting from fluctuations in exchange rates.
- firms buying gold to protect themselves against the loss of value of currencies due to inflation.
- the actions a firm will take to reduce the risk of fluctuations in exchanges rates when carrying out transactions in foreign currencies.
A: the actions a firm will take to reduce the risk of fluctuations in exchanges rates when carrying out transactions in foreign currencies.

Q: A British firm buys out a US software company to complement their product line. This is an example of
- hedging.
- carrying out a portfolio investment.
- carrying out a direct investment.
A: carrying out a direct investment.

Q: If the exchange rate between the U.S. dollar and the Argentine peso changes from $1 = 20 Pesos to $1 = 25 Pesos, then
- The U.S. dollar has depreciated against the Argentine peso.
- The Argentine Peso has appreciated against the U.S. dollar.
- The U.S. dollar has appreciated against the Argentine peso.
A: The U.S. dollar has appreciated against the Argentine peso.

Q: If one Argentine Peso buys $0.05 and then a month later buys $0.07, then
- The Argentine peso has depreciated against the U.S. dollar.
- The U.S. dollar has appreciated against the Argentine peso.
- The Argentine peso has appreciated against the U.S. dollar.
A: The Argentine peso has appreciated against the U.S. dollar.

Q: A business man travels to China on a regular basis and stays in the same hotel. After conversion in U.S. dollars, the price of the hotel room has been falling. You conclude that
- The U.S. dollar has depreciated against the Chinese yuan.
- The U.S. dollar has gained value against all other currencies.
- The U.S. dollar has appreciated against the Chinese yuan.
A: The U.S. dollar has appreciated against the Chinese yuan.

Q: If a currency over time buys fewer units on another currency, then
- that currency has appreciated.
- that currency has achieved purchasing power parity.
- that currency has depreciated.
A: that currency has depreciated.

Q: The exchange rate between the U.S. dollar and the euro is 1 euro = $1.25. Which of the following exchange rates show a depreciation of the euro?
- 1 euro = $1.35
- $1 = 0.7 euro
- 1 euro = $1.15
A: 1 euro = $1.15

Q: The exchange rate between the Swiss Franc and the euro is 1 euro = 0.8 Swiss franc. Which of the following exchange rates show an appreciation of the euro?
- 1 euro = 0.6 Swiss franc
- 1 Swiss franc = 1.35 euro
- 1 Swiss franc = 1.1 euro
A: 1 Swiss franc = 1.1 euro

Q: School is out for the summer and you decide to move from the U.S. to Italy. Your friend worked in Italy last year and rented a room for a month in Rome for $850 U.S. dollars. You arrive in Rome and rent that same room for $920 a month. What has happened to the U.S. dollar within a year’s time?
- The U.S. dollar has appreciated against the Euro in a year.
- The U.S. dollar has barely fluctuated the Euro in a year.
- The U.S. dollar has depreciated against the Euro in a year.
A: The U.S. dollar has depreciated against the Euro in a year.

Q: A student from China starts their second year at the University of Chicago. Last years tuition cost the student ¥310,697 (yuan) but this year her tuition cost her ¥307,697 (yuan). What has happened to China’s currency?
- The yuan has barely decreased against the U.S. dollar in a year.
- The yuan has depreciated against the U.S. dollar in a year.
- The yuan has appreciated against the U.S. dollar in a year.
A: The yuan has appreciated against the U.S. dollar in a year.

Q: If a tourist can purchase more Japanese yen than before for each U.S. dollar they exchange, then
- the Japanese yen has gained strength against the U.S. dollar.
- the U.S. dollar has lost strength against the Japanese yen.
- the Japanese yen has lost strength against the U.S. dollar.
A: the Japanese yen has lost strength against the U.S. dollar.

Q: If the Canadian dollar is strengthening, then
- Canada has adopted a hard peg policy.
- Canada has purchasing power parity.
- it has appreciated in terms of other currencies.
A: it has appreciated in terms of other currencies.

Q: If the U.S. dollar is appreciating that means it is worth ________ because it is ________ compared to other countries’ currencies.
- less; weakening
- less; a problem for international bankers
- more; strengthening
A: more; strengthening

Q: A depreciating U.S. dollar is ________ because it is worth ________ in terms of other currencies.
- strengthening; more
- a problem for exporters; less
- weakening; less
A: weakening; less

Q: If the following exchange rate goes from 1 GBP (British pound) = 1.3782 USD ($) to 1 GBP (British pound) = 1.85 USD ($), then
- the British pound depreciated against the U.S. dollar.
- the U.S. dollar appreciated against the British pound.
- the British pound appreciated against the U.S. dollar.
A: the British pound appreciated against the U.S. dollar.

Q: If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:
- the dollar appreciated against the yen.
- the yen depreciated against the dollar.
- the yen weakened against the dollar.
- the dollar depreciated against the yen.
A: the dollar depreciated against the yen.

Q: If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:
- the dollar depreciated against the peso.
- the peso appreciated against the dollar.
- the peso strengthened against the peso.
- the dollar strengthened against the peso.
A: the dollar strengthened against the peso.

Q: If currency A appreciates relative to currency B, then currency B
- appreciates against currency A.
- will match currency A
- depreciates against currency A.
A: depreciates against currency A.

Q: If the value of the euro falls compared to the dollar, which of the following is the likely outcome for the U.S. balance of trade with the EU?
- American imports from the EU fall.
- American exports to the EU rise.
- American exports to the EU fall.
A: American exports to the EU fall.

Q: If the value of the euro appreciates compared to the dollar, what is the likely impact on U.S. exports to the EU?
- No change.
- U.S. exports to the EU fall.
- U.S. exports to the EU rise.
A: U.S. exports to the EU rise.

Q: A stronger U.S. dollar typically
- increases demand on the U.S. economy.
- makes American exports cheaper.
- makes American exporters happy.
- makes imported goods and services cheaper.
A: makes imported goods and services cheaper.

Q: A weaker U.S. dollar typically
- increases US demand for imports.
- makes imported goods and services cheaper.
- hurts American exporters.
- makes American exports cheaper.
A: makes American exports cheaper.

Q: If the euro becomes stronger, which of these examples would that stronger euro benefit?
- Italian students studying in Denmark.
- Americans students studying in France.
- Swiss firms selling in the United States.
A: Swiss firms selling in the United States.

Q: A stronger euro is less favorable for:
- German tourists traveling abroad.
- Canadian firms selling in Germany.
- American tourists traveling in France.
A: American tourists traveling in France.

Q: If the British pound is strengthened, which of these examples would have the least to gain?
- Scottish firms selling products in the British Virgin islands.
- British tourist vacationing in Australia.
- U.S. tourist visiting London, England.
A: U.S. tourist visiting London, England.

Q: A stronger British pound is beneficial for
- U.S. exchange students studying in Britain with a U.S. scholarship.
- British firms selling goods and services in Canada.
- exchange students with a British scholarship studying in Canada.
A: exchange students with a British scholarship studying in Canada.

Q: Which of the following examples would benefit the most from the U.S. dollar weakening?
- U.S businesses selling in Asia.
- Mexican investors who have stocks in U.S. companies.
- France importing goods and services from the U.S.
A: France importing goods and services from the U.S.

Q: If the U.S. dollar weakens, which of the following parties will benefit?
- Countries exporting to the U.S.
- Japanese investors who have money in the U.S.
- U.S firms selling in Europe
A: U.S firms selling in Europe