Which of the following is LEAST relevant to being designated by Euromoney magazine as a top foreign-exchange dealer?

Which of the following is LEAST relevant to being designated by Euromoney magazine as a top foreign-exchange dealer? 

A) capability of handling specific currencies
B) capability of assessing cultural risk
C) capability of handling derivatives
D) capability of engaging in analytics

Answer: B

An investor sells Japanese yen which is yielding a low interest rate and uses the proceeds to buy Swiss francs that yield a higher interest rate. Which term best describes the investor's actions?

An investor sells Japanese yen which is yielding a low interest rate and uses the proceeds to buy Swiss francs that yield a higher interest rate. Which term best describes the investor's actions? 

A) forward discount spread
B) interbank transaction
C) strike price option
D) carry trade

Answer: D

Which of the following best explains why migrant workers in Dubai send money back home?

Which of the following best explains why migrant workers in Dubai send money back home?

A) Non-citizens cannot purchase property.
B) Non-citizens have temporary visas.
C) Western Union offers low rates.
D) Labor demand is flexible

Answer: A

How does arbitrage differ from speculation?

How does arbitrage differ from speculation?

A) Speculation, unlike arbitrage, is never used to protect against risk.
B) A speculator buys or sells foreign currency with the hope that that currency will either weaken or strengthen in the future, resulting in a profit.
C) Speculation is the purchase of foreign currency on one market for the immediate resale on another market.
D) Arbitrage is another way to speculate for profit or protect against risk.

Answer: B

Which of the following is an example of interest arbitrage?

Which of the following is an example of interest arbitrage?

A) investing in debt instruments in different currencies or different countries
B) selling U.S. dollars for Swiss francs, then selling Swiss francs for British pounds, then selling British pounds for U.S. dollars
C) investigating different commercial banks to find the best exchange rate
D) an American investing in a London-based company

Answer: A

Ryan, a foreign-exchange dealer, sold U.S. dollars for Swiss francs in the U.S., then sold Swiss francs for Japanese yen in Switzerland, and then sold the Japanese yen for U.S. dollars in the U.S. Ryan hopes that he will end up with more U.S. dollars than when he began. Which term best describes Ryan's actions?

Ryan, a foreign-exchange dealer, sold U.S. dollars for Swiss francs in the U.S., then sold Swiss francs for Japanese yen in Switzerland, and then sold the Japanese yen for U.S. dollars in the U.S. Ryan hopes that he will end up with more U.S. dollars than when he began. Which term best describes Ryan's actions?

A) arbitrage
B) speculation
C) spot transaction
D) outright forward

Answer: A

Which of the following best describes arbitrage?

Which of the following best describes arbitrage?

A) using foreign exchange to fund new foreign direct investments
B) purchasing foreign currency in anticipation of long-term trends
C) using foreign-exchange instruments to speculate for profit
D) purchasing foreign currency on one market for immediate resale on another market

Answer: D

Anita, an employee at ABX Partners, a hedge fund firm, has purchased euros because she believes that the euro will strengthen against other currencies. Which term best describes Anita's activities?

Anita, an employee at ABX Partners, a hedge fund firm, has purchased euros because she believes that the euro will strengthen against other currencies. Which term best describes Anita's activities?

A) arbitrage
B) speculation
C) spot transaction
D) outright forward

Answer: B

A speculator is someone who ________.

A speculator is someone who ________.

A) trades foreign exchange illegally
B) deals in the black market in currency
C) takes positions in foreign-exchange markets to earn a profit
D) works for OTC financial institutions rather than nonfinancial corporations

Answer: C

A letter of credit that provides an exporter with the guarantee of another bank in addition to the importer's bank is called ________.

A letter of credit that provides an exporter with the guarantee of another bank in addition to the importer's bank is called ________.

A) a confirmed letter of credit
B) a time draft letter of credit
C) an amendable letter of credit
D) a cash in advance letter of credit

Answer: A

An irrevocable letter of credit ________.

An irrevocable letter of credit ________.

A) is issued by a global credit agency
B) is the basis for multilateral credit netting
C) can be amended only if all parties involved agree
D) obligates the exporter's bank to pay interest to the importer

Answer: C

A document requesting payment 30 days after delivery is known as a ________.

A document requesting payment 30 days after delivery is known as a ________.

A) time draft
B) sight draft
C) spot draft
D) futures draft

Answer: A

Gomez Enterprises, a firm based in Mexico City, exported 1,000 circuit boards to Taylor Industries, a firm based in Chicago. Taylor received a document from Gomez that requests immediate payment for the goods. Gomez has most likely sent a ________.

Gomez Enterprises, a firm based in Mexico City, exported 1,000 circuit boards to Taylor Industries, a firm based in Chicago. Taylor received a document from Gomez that requests immediate payment for the goods. Gomez has most likely sent a ________.

A) time draft
B) sight draft
C) spot draft
D) futures draft

Answer: B

In a ________, one party directs another party to make payment.

In a ________, one party directs another party to make payment.

A) reverse letter of credit
B) commercial bill of exchange
C) commercial bill of trade
D) confirmed irrevocable foreign-exchange transaction

Answer: B

Which of the following is NOT a reason a company would deal in foreign exchange?

Which of the following is NOT a reason a company would deal in foreign exchange?

A) to pay or receive dividends in a foreign currency
B) to speculate on possible future movements in a currency
C) to buy and sell merchandise denominated in a foreign currency
D) to import merchandise denominated in its currency rather than the currency of the exporter

Answer: D

If a company from Country A decides to sell merchandise to a company from Country B, then the company from Country A ________.

If a company from Country A decides to sell merchandise to a company from Country B, then the company from Country A ________.

A) will denominate the sale in its own currency since it is too hard to convert foreign currency
B) will denominate the sale in the currency of the buyer since it is too hard for them to convert foreign currency
C) can denominate the sale in either currency and use the foreign-exchange market to convert currency
D) can use the OTC market to convert receipts in the future and the exchange markets to convert receipts in the spot market

Answer: C

Companies most likely use the foreign-exchange market to ________.

Companies most likely use the foreign-exchange market to ________.

A) establish fair currency trading policies
B) facilitate regular business transactions
C) establish a global market presence
D) diversify their hedge funds

Answer: B

Companies most likely use the foreign-exchange market to ________.

Companies most likely use the foreign-exchange market to ________.

A) diversify their expenses from other sources
B) convert money for use in financial transactions
C) increase their presence on the black market
D) acquire currency from emerging markets

Answer: B

When selecting a commercial and/or investment bank to deal in foreign exchange, corporations are most likely to use ________.

When selecting a commercial and/or investment bank to deal in foreign exchange, corporations are most likely to use ________.

A) the exchange-based market rather than the over-the-counter market
B) more than one bank to meet different needs
C) banks located in the home country
D) investment banks only

Answer: B

Which of the following is NOT one of the top exchanges that trade in foreign currency futures and options?

Which of the following is NOT one of the top exchanges that trade in foreign currency futures and options? 

A) CME
B) UBS
C) NYSE Liffe
D) NASDAQ OMX

Answer: B