PRACTICE EXAM 2, ECON 6280 GEORGE WASHINGTON UVINERSITY FINAL
EXAM REVIEW
1)The world's largest foreign exchange trading center is
A) New York.
B) Tokyo.
C) London.
D) Hong Kong.
Answer: C
Topic: Function and Structure of the FX Market
Accessibility: Keyboard Navigation
2) On average, worldwide daily trading of foreign exchange is closest to
A)$100 million.
B) $15 billion.
C) $504 billion.
D) $5 trillion.
Answer: D
Topic: Function and Structure of the FX Market
Accessibility: Keyboard Navigation
3) The foreign exchange market closes
A) never.
B) 4:00 p.m. EST (New York time).
C) 4:00 p.m. GMT (London time).
D) 4:00 p.m. (Tokyo time).
Answer: A
Topic: Function and Structure of the FX Market
Accessibility: Keyboard Navigation
4) Most foreign exchange transactions are for
A) intervention by central banks.
B) interbank trades between international banks or nonbank dealers.
C) retail trade.
D) purchase of hard currencies.
Answer: B
Topic: FX Market Participants
Accessibility: Keyboard Navigation
https://www.stuvia.com/
, 5) The difference between a broker and a dealer is
A) dealers sell drugs; brokers sell houses.
B) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy
and sell from their inventory.
C) brokers transact in stocks and bonds; currency is bought and sold through dealers.
D) none of the options
Answer: B
Topic: FX Market Participants
Accessibility: Keyboard Navigation
6) Most interbank trades are
A) speculative or arbitrage transactions.
B) simple order processing for the retail client.
C) overnight loans from one bank to another.
D) brokered by dealers.
Answer: A
Topic: FX Market Participants
Accessibility: Keyboard Navigation
7) At the wholesale level,
A) most trading takes place OTC between individuals on the floor of the exchange.
B) most trading takes place over the phone.
C) most trading flows over Reuters and EBS platforms.
D) most trading flows through specialized "broking" firms.
Answer: C
Topic: FX Market Participants
Accessibility: Keyboard Navigation
8) Intervention in the foreign exchange market is the process of
A) a central bank requiring the commercial banks of that country to trade at a set price level.
B) commercial banks in different countries coordinating efforts in order to stabilize one or more
currencies.
C) a central bank buying or selling its currency in order to influence its value.
D) the government of a country prohibiting transactions in one or more currencies.
Answer: C
Topic: FX Market Participants
Accessibility: Keyboard Navigation
https://www.stuvia.com/
, 9) The standard size foreign exchange transactions are for
A) $10 million USD.
B) $1 million USD.
C) €1 million.
D) none of the options
Answer: A
Topic: FX Market Participants
10) Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced
in euros, at a cost of €512,100. The U.S. importer will contact his U.S. bank (where of course he
has an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank
quotes as €1.0242/$1.00. The importer accepts this price, so his bank will the importer's
account in the amount of .
A) debit; $500,000
B) debit; $524,492
C) credit; $500,000
D) debit; €512,100
Answer: A
Explanation: 512,100/1.0242 = 500,000
Topic: Correspondent Banking Relationships
11) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000
from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will fall by $90,000.
B) Bank B's dollar-denominated account at A will rise by $90,000.
C) Bank A's pound-denominated account at B will rise by £45,000.
D) Bank B's pound-denominated account at A will fall by £45,000.
E) all of the options
Answer: E
Topic: Correspondent Banking Relationships
12) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000
from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will rise by $90,000.
B) Bank B's dollar-denominated account at A will fall by $90,000.
C) Bank A's pound-denominated account at B will rise by £45,000.
D) Bank B's pound-denominated account at A will rise by £45,000.
Answer: C
Topic: Correspondent Banking Relationships
https://www.stuvia.com/
, 13) The current exchange rate is €1.00 = $1.50. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys €100,000
from a currency trader at Bank B for $150,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will fall by $150,000.
B) Bank B's dollar-denominated account at A will fall by $150,000.
C) Bank A's pound-denominated account at B will fall by €100,000.
D) Bank B's pound-denominated account at A will rise by €100,000.
Answer: A
Topic: Correspondent Banking Relationships
14) The spot market
A) involves the almost-immediate purchase or sale of foreign exchange.
B) involves the sale of futures, forwards, and options on foreign exchange.
C) takes place only on the floor of a physical exchange.
D) all of the options
Answer: A
Topic: The Spot Market
Accessibility: Keyboard Navigation
15) Spot foreign exchange trading
A) accounted for about 5 percent of all foreign exchange trades in 2013.
B) accounted for about 20 percent of all foreign exchange trades in 2013.
C) accounted for about 40 percent of all foreign exchange trades in 2013.
D) accounted for about 70 percent of all foreign exchange trades in 2013.
Answer: C
Topic: The Spot Market
Accessibility: Keyboard Navigation
https://www.stuvia.com/
EXAM REVIEW
1)The world's largest foreign exchange trading center is
A) New York.
B) Tokyo.
C) London.
D) Hong Kong.
Answer: C
Topic: Function and Structure of the FX Market
Accessibility: Keyboard Navigation
2) On average, worldwide daily trading of foreign exchange is closest to
A)$100 million.
B) $15 billion.
C) $504 billion.
D) $5 trillion.
Answer: D
Topic: Function and Structure of the FX Market
Accessibility: Keyboard Navigation
3) The foreign exchange market closes
A) never.
B) 4:00 p.m. EST (New York time).
C) 4:00 p.m. GMT (London time).
D) 4:00 p.m. (Tokyo time).
Answer: A
Topic: Function and Structure of the FX Market
Accessibility: Keyboard Navigation
4) Most foreign exchange transactions are for
A) intervention by central banks.
B) interbank trades between international banks or nonbank dealers.
C) retail trade.
D) purchase of hard currencies.
Answer: B
Topic: FX Market Participants
Accessibility: Keyboard Navigation
https://www.stuvia.com/
, 5) The difference between a broker and a dealer is
A) dealers sell drugs; brokers sell houses.
B) brokers bring together buyers and sellers, but carry no inventory; dealers stand ready to buy
and sell from their inventory.
C) brokers transact in stocks and bonds; currency is bought and sold through dealers.
D) none of the options
Answer: B
Topic: FX Market Participants
Accessibility: Keyboard Navigation
6) Most interbank trades are
A) speculative or arbitrage transactions.
B) simple order processing for the retail client.
C) overnight loans from one bank to another.
D) brokered by dealers.
Answer: A
Topic: FX Market Participants
Accessibility: Keyboard Navigation
7) At the wholesale level,
A) most trading takes place OTC between individuals on the floor of the exchange.
B) most trading takes place over the phone.
C) most trading flows over Reuters and EBS platforms.
D) most trading flows through specialized "broking" firms.
Answer: C
Topic: FX Market Participants
Accessibility: Keyboard Navigation
8) Intervention in the foreign exchange market is the process of
A) a central bank requiring the commercial banks of that country to trade at a set price level.
B) commercial banks in different countries coordinating efforts in order to stabilize one or more
currencies.
C) a central bank buying or selling its currency in order to influence its value.
D) the government of a country prohibiting transactions in one or more currencies.
Answer: C
Topic: FX Market Participants
Accessibility: Keyboard Navigation
https://www.stuvia.com/
, 9) The standard size foreign exchange transactions are for
A) $10 million USD.
B) $1 million USD.
C) €1 million.
D) none of the options
Answer: A
Topic: FX Market Participants
10) Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced
in euros, at a cost of €512,100. The U.S. importer will contact his U.S. bank (where of course he
has an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank
quotes as €1.0242/$1.00. The importer accepts this price, so his bank will the importer's
account in the amount of .
A) debit; $500,000
B) debit; $524,492
C) credit; $500,000
D) debit; €512,100
Answer: A
Explanation: 512,100/1.0242 = 500,000
Topic: Correspondent Banking Relationships
11) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000
from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will fall by $90,000.
B) Bank B's dollar-denominated account at A will rise by $90,000.
C) Bank A's pound-denominated account at B will rise by £45,000.
D) Bank B's pound-denominated account at A will fall by £45,000.
E) all of the options
Answer: E
Topic: Correspondent Banking Relationships
12) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000
from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will rise by $90,000.
B) Bank B's dollar-denominated account at A will fall by $90,000.
C) Bank A's pound-denominated account at B will rise by £45,000.
D) Bank B's pound-denominated account at A will rise by £45,000.
Answer: C
Topic: Correspondent Banking Relationships
https://www.stuvia.com/
, 13) The current exchange rate is €1.00 = $1.50. Compute the correct balances in Bank A's
correspondent account(s) with Bank B if a currency trader employed at Bank A buys €100,000
from a currency trader at Bank B for $150,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will fall by $150,000.
B) Bank B's dollar-denominated account at A will fall by $150,000.
C) Bank A's pound-denominated account at B will fall by €100,000.
D) Bank B's pound-denominated account at A will rise by €100,000.
Answer: A
Topic: Correspondent Banking Relationships
14) The spot market
A) involves the almost-immediate purchase or sale of foreign exchange.
B) involves the sale of futures, forwards, and options on foreign exchange.
C) takes place only on the floor of a physical exchange.
D) all of the options
Answer: A
Topic: The Spot Market
Accessibility: Keyboard Navigation
15) Spot foreign exchange trading
A) accounted for about 5 percent of all foreign exchange trades in 2013.
B) accounted for about 20 percent of all foreign exchange trades in 2013.
C) accounted for about 40 percent of all foreign exchange trades in 2013.
D) accounted for about 70 percent of all foreign exchange trades in 2013.
Answer: C
Topic: The Spot Market
Accessibility: Keyboard Navigation
https://www.stuvia.com/
