40) Even though the Euro currency has been designed and printed, it is still not available for
general use by the public, except for tourists, in the European Union. Answer: FALSE
Topic: The Euro
Skill: Recognition
41) Which of the following is NOT a required convergence criteria to become a full member of
the European Economic and Monetary Union (EMU)?
A) National birthrates must be at 2.0 or lower per person.
B) The fiscal deficit should be no more than 3% of GDP.
C) Nominal inflation should be no more than 1.5% above the average inflation rate for the
three members with the lowest inflation rates in the previous year. D) Government debt should be no more than 60% of GDP.
Answer: A
Topic: The Euro
Skill: Recognition
42) Which of the following groups of countries have replaced their individual currencies with
the Euro?
A) France, Germany, and the United Kingdom
B) Sweden, Denmark, and Greece
C) The United Kingdom, The Netherlands, and Austria
D) Germany, The Netherlands, and Italy
Answer: D
Topic: The Euro
Skill: Recognition
43) The tremendous international mobility of financial capital is forcing emerging market
nations to adopt one of two polarized choices, free float or currency board, for their foreign currency exchange regimes. Which of the following would NOT be a reason for an emerging nation to choose to have their currency freely float?
A) The country desires to lose political influence on the valuation of their currency.
B) The emerging nation desires an independent monetary policy.
C) The emerging nation is willing to tradeoff exchange rate stability to gain free
movement of capital. D) All of the above.
Answer: A
Topic: Emerging Markets
Skill: Conceptual
44) According to the authors, what is the single most important mandate of the European
Central Bank?
A) Promote international trade for countries within the European Union.
B) Price, in euros, all products for sale in the European Union.
C) Promote price stability within the European Union.
D) Establish an EMU trade surplus with the United States.
Answer: C
Topic: The Euro
Skill: Conceptual
9
45) Ignoring transaction costs and based solely on the change in currency exchange rates, a
speculator who sold short a two-year contract for the euro (receiving dollars) in January 2006 would have realized a profit upon the exercise of the contract in January 2008. Answer: FALSE
Topic: The Euro
Skill: Analytical
46) Which of the following is a way in which the euro affects markets?
A) Countries within the Euro zone enjoy cheaper transaction costs.
B) Currency risks and costs related to exchange rate uncertainty are reduced.
C) Consumers and business enjoy price transparency and increased price -based competition. D) All of the above.
Answer: D
Topic: The Euro
Skill: Conceptual
47) A special Drawing Right is a unit of account established by
A) the Federal Reserve Bank.
B) the World Bank.
C) the International Monetary Fund.
D) the European Central Bank.
Answer: C
Topic: International Monetary Fund
Skill: Recognition
48) A currency is considered hard if
A) it is expected to be revalued or appreciate.
B) it is expected to be devalued or depreciate.
C) it is backed in part by a precious metal such as gold.
D) it is difficult to trade on the international currency exchange markets.
Answer: A
Topic: Currency Terminology
Skill: Recognition
49) Under a fixed exchange rate regime, the government of the country is officially responsible for
A) intervention in the foreign exchange markets using gold and reserves.
B) setting the fixed/parity exchange rate.
C) maintaining the fixed/parity exchange rate.
D) all of the above.
Answer: D
Topic: Currency Regimes
Skill: Recognition
10
50) ________ are domestic currencies of one country on deposit in a second country.
A) LIBORs
B) Eurocurrencies
C) Global Federal Funds
D) FOREX Funds
Answer: B
Topic: Eurocurrency Market
Skill: Recognition
51) Which of the following is NOT an example of a Eurocurrency deposit?
A) British pounds deposited outside of the United Kingdom
B) Japanese yen deposited outside of Japan
C) U.S. dollars deposited outside of the United States
D) All of the above could be considered Eurocurrency deposits.
Answer: D
Topic: Eurocurrency Market
Skill: Recognition
52) Which of the following would NOT be a valuable Eurocurrency market transaction?
A) Ford Motor Company holds temporary excess dollars in a London bank.
B) Dell Computer borrows dollars from a German bank to fund accounts receivable.
C) Volkswagen borrows Euros in France to finance working capital.
D) A Russian oil firm deposits dollars in Moscow Narodny Bank in London.
Answer: C
Topic: Eurocurrency Market
Skill: Conceptual
53) Generally, Eurocurrency loans are based on the London Interbank Offered Rate (LIBOR) and
have a lower offering rate because
A) Eurocurrency markets are a wholesale market.
B) transaction sizes are for very large amounts of money.
C) market participants have very good credit ratings.
D) all of the above.
Answer: D
Topic: Eurocurrency Market
Skill: Conceptual
54) Eurocurrency markets are subject to more stringent reserve requirements than those
imposed on U.S. banks by the Federal Reserve. Answer: FALSE
Topic: Eurocurrency Market
Skill: Conceptual
11
55) For at least two years from early 2006 to early 2008, the euro maintained a strong and steady
rise in value against the U.S. dollar (USD). Which of the following were NOT a contributing factor in the assent of the euro and the decline in the dollar? A) severe U.S. balance of payments deficits
B) a general weakening of the dollar after the attacks of September 11, 2001
C) large U.S. balance of payment surpluses
D) All of the above were contributing factors.
Answer: C
Topic: Dollar Depreciation
Skill: Conceptual
56) In London an investor can buy a U.S. dollar for ￡0.5356. In New York the ￡/$ exchange rate is
the same as found in London. Given this information, what is the $/￡ exchange rate in New York?
A) $1.8671/￡
B) ￡0.5356/$
C) ￡1.8671/$
D) $0.5356/￡
Answer: A
Topic: Exchange Rates
Skill: Analytical
57) What was the annualized forward premium on the pound if the spot rate on January 20,
2005 was ￡0.5156$ and the 180 day forward rate was ￡0.5000/$? A) 6.24%
B) 3.12%
C) 1.56%
D) 6.05%
Answer: A
Topic: Forward Premium
Skill: Analytical
12
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