Reading 18: Currency Exchange Rates - LOS a, (Part 1) ～ Q white, black, amount, exchange, class

mayanfang1

Q1. The spot exchange rate is USD 0.50 per Alpha. A U.S. importer wants to buy stuffed toys for a total amount of 6 million Alphas. The USD equivalent cost is:

A)   USD 12,000,000.

B)   Alpha 3,000,000.

C)   USD 3,000,000.

Q2. Which of the following statements about the foreign exchange market is least accurate?

A)   Foreign exchange quotations can be expressed on a direct basis--the foreign currency price of the home currency--or an indirect basis--the home currency price of another currency.

B)   In the spot market, currencies are traded for immediate delivery but in the forward market, contracts are made to buy and sell currencies for future delivery.

C)   A foreign currency is at a forward discount if the forward rate expressed in domestic currency is below the spot rate, whereas a forward premium exists if the forward rate is above the spot rate.

Q3. The direct method of foreign exchange quotations:

A)     is used primarily in the U.K., Canada, and the U.S.

B)     quotes the foreign currency per unit of domestic currency: FC/DC.

C)     quotes the domestic currency per unit of foreign currency: DC/FC.

Q4. The direct quote method is:

A)     FC/DC.

B)     DC/FC.

C)     1/(DC/FC).

Q5. If the indirect quote for U.S. dollars in Sydney is 0.7927, what is the equivalent indirect quote in New York City for Australian dollars?

A)    0.3964.

B)    0.7927.

C)    1.2615.

mayanfang1

答案和详解如下：

Q1. The spot exchange rate is USD 0.50 per Alpha. A U.S. importer wants to buy stuffed toys for a total amount of 6 million Alphas. The USD equivalent cost is:

A)   USD 12,000,000.

B)   Alpha 3,000,000.

C)   USD 3,000,000.

Correct answer is C)

Start by computing $0.50 times 6,000,000 Alpha = USD 3,000,000. Dividing 6,000,000 Alpha by $0.50 gives an incorrect answer of USD 12,000,000 and Alpha-denominated choices don’t provide the USD equivalent.

Q2. Which of the following statements about the foreign exchange market is least accurate?

A)   Foreign exchange quotations can be expressed on a direct basis--the foreign currency price of the home currency--or an indirect basis--the home currency price of another currency.

B)   In the spot market, currencies are traded for immediate delivery but in the forward market, contracts are made to buy and sell currencies for future delivery.

C)   A foreign currency is at a forward discount if the forward rate expressed in domestic currency is below the spot rate, whereas a forward premium exists if the forward rate is above the spot rate.

Correct answer is A)

Foreign exchange quotations can be expressed on a direct basis — the home currency price of another currency—or an indirect basis—the foreign currency price of the home currency.

Q3. The direct method of foreign exchange quotations:

A)     is used primarily in the U.K., Canada, and the U.S.

B)     quotes the foreign currency per unit of domestic currency: FC/DC.

C)     quotes the domestic currency per unit of foreign currency: DC/FC.

Correct answer is C)

The direct method of foreign exchange quotations is quoted as DC/FC.

Q4. The direct quote method is:

A)     FC/DC.

B)     DC/FC.

C)     1/(DC/FC).

Correct answer is B)

Direct quotes are the usual method of quoting currencies. Indirect quotes are used in the U.K., Canada, and U.S.

Q5. If the indirect quote for U.S. dollars in Sydney is 0.7927, what is the equivalent indirect quote in New York City for Australian dollars?

A)    0.3964.

B)    0.7927.

C)    1.2615.

Correct answer is C)

Indirect quotes are foreign currency per domestic currency or FC/DC. An indirect quote in Sydney for USD of 0.7927 means 0.7927USD/AUD which equals an indirect quote in New York City of 1AUD/0.7927USD = 1.26AUD/USD.

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