FIN 480 BY L8RON-W Finance Exam #1 1 . True or false? A pure arbitrage takes advantage of price discrepancies by buying low and selling high in such a way as to place no wealth at risk. 2. SKR is the ISO code for the Swedish Currency, the krona. A Swedish band quotes SKR 8/1JSD Bid and SKR 9/1JSD Ask. These quotes are in: A. American terms B. Direct terms from a U. S perspective C. Direct terms from a Swedish perspective D. Indirect terms from a Swedish perspective 3. U. S. bank quotes $1. 27/?‚¬ ask (?‚¬ is the Symbol for the euro.
Expressed strictly in Rule #2 terms, what is U. S bank willing to do at this exchange rate? A. Buy dollar. B. Buy euros. C. Sell dollars. D. Sell euros. 4. U. S. bank quotes $1. 19/?‚¬ bid and $1. 27/?‚¬ ask. How many euros is U. S bank effectively asking for $1 that it sells to the public? A. 1. 19 B. 1. 24 c. 0. 79 D. 0. 84 5. True or false? A hedge of a currency risk exposure should be designed to take advantage of exchange rate and interest rate discrepancies to make a profit. 6. The euro depreciates 16. 67% against the dollar in one period.
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How much does the dollar appreciate or depreciate against the euro in that same period? A. Depreciates 14. 29% B. Depreciates 5. 00% C. Appreciates 16. 67% D. Appreciates 20. 00% 7. In a forward trade for pounds that is made at by a U. S resident and U. S. bank and settles at t=l . A. The dollar amount is determined at t=O, the number of pounds is determined at t=l . B. The dollar amount and the number of pound are both determined at t=O. C. The dollar amount and the number of pound are both determined at t=l . D.
The dollar amount is determined at t=l; the exchanged rate is determined at t=O. 8. Global foreign exchanged market volume (also called turnover) is approximately: A. $ 4 billion per day. C. $4 billion per year. D. $ 4 trillion per year. 9. True or false? In a 90-day forward contract, one party is strictly obligated to perform the agreed currency transaction by the other party can choose to back out without penalty for the first 60 days. 10. True or false? Fixed exchange rates are hard to maintain when they diverge from market value.