WEEK 8 QUIZ - FIN350 EXAM | QUESTIONS & ANSWERS (VERIFIED) | LATEST UPDATE | GRADED A+

In a(n) ____ exchange rate system, the foreign exchange market is totally free from government intervention. ANSWER: freely floating ___ forecasting involves the use of historical exchange rate data to predict future values. ANSWER: Technical ____ are not foreign exchange derivatives. ANSWER: All of the above are foreign exchange der Which of the following is the least feasible strategy for a speculator who expects the Australian dollar to depreciate? ANSWER: purchase call options on Australian dollars; at some point before the expiration date, exercise the call option and then sell the Australian dollars received in the spot market Deeagles - Stuvia US When a government influences factors, such as inflation, interest rates, or income, in order to affect currency's value, this is an example of ANSWER: indirect intervention. Assume interest rate parity exists. If the spot rate on the British pound is $2 and the 1- year British interest rate is 7 percent, and the 1-year U.S. interest rate is 11 percent, what is the pound's forward discount or premium? ANSWER: 3.74 percent premium Bank A asks $.555 for Swiss francs and Banks B and C are willing to pay $.557 for francs. An institution could capitalize on these differences by engaging in ANSWER: locational arbitrage. A speculator who expects the euro to depreciate might ANSWER: sell euros forward and then purchase them in the spot market just before fulfilling the forward obligation. The exchange rate between two foreign (nondollar) currencies is known as a(n): ANSWER: cross-exchange rate. The Bretton Woods Era was the era ANSWER: in which governments maintained exchange rates within 1 percent of a specified rate. Deeagles - Stuvia US A system whereby exchange rates are market determined without boundaries but subject to government intervention is called ANSWER: a dirty float. Which of the following is not a method of forecasting exchange rate volatility? ANSWER: using the volatility of future exchange rate movement