4. International Finance
Foreign Exchange — Quiz
Test your understanding of foreign exchange with 5 practice questions.
Practice Questions
Question 1
Which of the following describes the concept of 'covered interest arbitrage' in foreign exchange markets?
Question 2
If the current spot rate is $1 \text{ USD} = 1.25 \text{ CAD}$, and the 3-month forward rate is $1 \text{ USD} = 1.23 \text{ CAD}$, what does this imply about the Canadian dollar relative to the U.S. dollar in the forward market?
Question 3
What is the primary role of a central bank in the foreign exchange market?
Question 4
A Japanese exporter expects to receive $500,000 \text{ USD}$ in six months. To mitigate the risk of the U.S. dollar depreciating against the Japanese Yen (JPY), the exporter enters into a 6-month forward contract. If the current spot rate is $1 \text{ USD} = 148 \text{ JPY}$ and the 6-month forward rate is $1 \text{ USD} = 145 \text{ JPY}$, how many Japanese Yen will the exporter receive using the forward contract?
Question 5
Which of the following economic theories suggests that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries?