Unit 3 – Exercises

I. TRUE/ FALSE QUESTIONS

1. The rate at which one currency is exchanged for another depends on the size of the
transaction, the trader conducting it, and general economic conditions. T
2. The practice of insuring against the potential losses that result from adverse changes in
exchange rates is called currency arbitrage. F
3. There are two components of every quoted exchange rate: the debt currency and the equity
currency. F
4. If an exchange rate quotes the number of Indian Rupees needed to buy one U.S. dollar, the
dollar is the quoted currency and the Rupee is the base currency. F
5. When you designate any exchange rate, the quoted currency is always the numerator and
the base currency the denominator. T
6. Exchange rate requiring delivery of the traded currency within two business days is called
cross rate. F: Spot rate
7. If a currency's forward rate is higher than its spot rate, it is trading at a discount.
8. A currency swap is the simultaneous purchase and sale of foreign exchange for two
different dates.
9. A convertible currency, also called soft currency, is traded freely in the foreign exchange
market, with its price determined by the London banks.
10. One goal of currency restriction is to preserve hard currencies to pay for imports and to
finance trade deficits.
11. One way to get around national restrictions on currency convertibility is to use barter
transactions. hàng đổi hàng: T
12. Because the gold standard fixed nations’ currencies to the value of gold, it is called a
fundamental disequilibrium. par value
13. The Bretton Woods Agreement was an accord among nations to create a new international
monetary system based on the value of the U.S. dollar.
14. To provide funding for countries' efforts toward economic development the Bretton
Woods Agreement created the International Bank for Reconstruction and Development.

II. MULTIPLE CHOICE QUESTIONS

1. Which of these is the market in which currencies are bought and sold and in which
currency prices are determined?
a. The Eurocurrency market b. The international capital market
c. The international bond market d. The foreign exchange market
2. For which of these reasons do investors use the foreign exchange market?
a. Currency hedging b. Currency speculation c. Currency arbitrage d. All of these.
3. Which of these refers to the practice of insuring against potential losses that result from
adverse changes in exchange rates?
a. Currency hedging b. Currency arbitrage c. Currency speculation d. Currency conversion
4. Which of these refers to the instantaneous purchase and sale of a currency in different
markets for profits?
a. Currency hedging b. Currency arbitrage c. Currency speculation d. Currency conversion
5. In a quoted exchange rate, the currency with which another currency is to be purchased
is called the ____.
a. base currency. b. forward currency. c. Cross currency. d. quoted currency.
6. In a quoted exchange rate of $I.69/British pound, the British pound is called the ____.
a. base currency b. forward currency. c. cross currency. d. quoted currency.
7. In designating any exchange rate, the quoted currency is always the ______.
a. fraction. b. denominator. c. numerator. d. indirect quote.
8. Which of these refers to exchange rates requiring delivery of the currency within two
business days?
a. Derivative rate b. Spot rate c. Discount rate d. Forward rate
9. Exchange of rate at which two parties agree to exchange currencies on a specified future
date is called a _____.
a. forward rate. b. bid and ask quote. c. spot rate. d. arbitrage rate.
10. If the forward rate of a currency is higher than its spot rate, the currency is trading at a
a. discount. b. swap rate. c. derivative rate. d. premium.
11. Which of these is the simultaneous purchase and sale of foreign exchange for two
different dates?
a. Forward contract b. Bid and ask quotes c. Currency swap d. Securitization
12. ______ specialize(s) in currency futures and options transactions.
a. Securities exchanges b. Eurocurrency c. Interbank d. Over- the-counter
13. A _____ currency is traded freely in the foreign exchange market.
a. barter b. hard c. totalitarian d. soft
14. Governments impose currency restrictions for which of these goals?
a. To protect the currency from speculators
b. To preserve hard currencies to finance trade deficits.
c. To keep resident individuals and businesses from investing in other nations
d. All of these.
15. In the earliest days, which of these was the internationally accepted currency for
payment of goods and services?
a. Yen b. Gold c. Alcohol d. Dollar
16. The international monetary system in which nations linked the value of their paper
currencies to specific values of gold is referred to as ______.
a. the bartered system. b. the floating exchange-rate system.
c. the gold standard. d. the managed float system.
17. Because the gold standard fixed nations' currencies to the value of gold, it is called a
_______.
 a. managed float system. b. floating exchange-rate system.
c. bartered system d. fixed exchange-rate system.
18. Which of these was the advantage(s) of the gold standard?
a. Correcting trade imbalances b. Imposing strict monetary policies
c. Reducing exchange-rate risk d. All of these.
19. Which of these was an accord among nations to create a new international monetary
system based on the value of the U.S. dollar?
a. Plaza Accord b. Bretton Woods Agreement c. Louvre Accord d. Jamaica Agreement
20. The new system under Bretton Woods Agreement incorporated all of these features
except _____.
a. funds for economic development. b. enforcement mechanism.
c. floating exchange rates. d. built-in flexibility.
21. The World Bank was created by _____.
a. the Jamaican Agreement. b. the Bretton Woods Agreement.
c. the Smithsonian Agreement. d. the Plaza Accord.
22. A system in which currencies float against one another, with government intervening
to stabilize their currency at a particular target exchange rate is called a (n) _____.
a. managed float system. b. the Bretton Woods system.
c. free float system. d. fixed exchange-rate system.
1. foreign exchange market
2. SHORT-ANSWER QUESTIONS 2. currency hedging
3. currency ảbitrage
1. The market in which currencies are bought and sold 4.and cu in which currency prices are
speculation
determined is called the _____. 5. quoted curr
2. The practice of insuring against potential losses that6. result
base curr
from adverse changes in
7. sopt rate
exchange rates is called _____.
8. fordwarđ rate
3. ______ is the instantaneous purchase and sale of a 9. currency
forwardincontract
different markets for
profit. 10. curr swap
11. convertble
4. _____ is the purchase or sale of a currency with the expectation that itscurr
value will change
12. barter (counter trade)
and generate a profit. 13. gold standard
14. fixed
5. In a quoted exchange rate, the currency with which another enchange
currency is torate
be purchased
is called the _____. system
15. bretton woods agreement
6. In a quoted exchange rate, the currency that is to be purchased with another currency is
16. world bank
called the _____. 17. ÌMF
18. managed
7. The exchange rate requiring delivery of the traded currency floatbusiness
within two system days is
called the _____. 19. free floated system
8. The exchange rate at which two parties agree to exchange currencies on a specified
future date is called the _____.
9. _____ is a contract requiring the exchange of an agreed-upon amount of a currency on
an agreed-upon date at a specific exchange rate.
 10. A _____ is the simultaneous purchase and sale of foreign exchange for two different
dates.
11. Currency that trades freely in the foreign exchange market, with its price determined by
the forces of supply and demand is called a _____.
12. Exchange of goods and services between two parties without the use of money is called
_____.
13. An international monetary system in which nations linked the value of their paper
currencies to specific values of gold was called the _____.
14. A system in which the exchange rate for converting one currency into another is fixed
by international agreement is called a _____.
15. The _____ was an accord among nations to create a new international monetary system
based on the value of the U.S. dollar.
16. The agency created by the Bretton Woods Agreement to provide funding national
economic development efforts is called the _____.
17. _____ was the agency created by the Bretton Woods Agreement to regulate fixed
exchange rates and enforce the rules of the international monetary system.
18. An exchange-rate system in which currencies float against one another with
governments intervening to stabilize currencies at a particular target exchange rate is
known as a ____.
19. _____ is an exchange - rate system in which currencies float freely against one another,
without governments intervening in currency markets.

Match up the terms with the definitions:

1. futures A contract giving the right, but not the obligation, to buy
2. options or sell a security, a currency, or a commodity at a
3. commodities fixed price during a certain period of time.
4. derivatives B contracts to buy or sell fixed quantities of a
5. hedging commodity, currency, or financial asset at a future
6. speculation date, at a price fixed at the time of making the contract
C a general name for all financial instruments whose
price depends on the movement of another price
D buying securities or other assets in the hope of making
1. B
2. A a capital gain by selling them at a higher price (or
3. F selling them in the hope of buying them back at a
4. C Thái sinh lower price)
5.E
6.D E making contract to buy or sell a commodity or
financial asset at a pre-arranged price in the future as
F a protection or “insurance” against price changes
 raw materials or primary products (metals, cereals,
coffee, etc.) that are traded on special markets

Match up the half-sentences below

1. To ‘peg’ a currency A. the amount of a country’s money that residents were able
against something to change into foreign currencies
means to B. fix its value in relation to it.
2. A clean floating C. make a profit by making capital gains or by investing
exchange rate at higher interest rates
3. Exchange controls D. is determined by supply and demand
used to limit E. trying to insure against unfavorable price movements by
4. Speculators buy or way of futures contract
sell currencies in F. the determination of price by supply and demand (the
order to quantity available and the quantity bought and sold).

5. ‘Market forces’
means

6. ‘Hedging’ means

1. B
2. D
3. A
4. C
5. F
6. E