Currency Exchange and Interest Rates Quiz
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Questions and Answers

What form of exposure is Eva worried about when she fears the exchange rate will cause her company to lose money?

  • Translation
  • Operating
  • Economic (correct)
  • Transaction

    • What is the practice of delaying receipts from foreign currency-designated receivables whose currencies are likely to appreciate and delaying foreign currency-designated payables whose currencies are likely to depreciate?

  • Currency swap (correct)
  • Hedging against foreign exchange risk
  • Fischer effect
  • Lagging statements

    • According to the Fischer effect, what is the relationship between nominal interest rate, real interest rate, and expected inflation rate?

  • Nominal interest rate is equal to real interest rate plus expected inflation rate (correct)
  • Real interest rate is equal to nominal interest rate minus expected rate of inflation
  • Exchange rate differential between two currencies is explained by interest
  • Inflation rate differential

    • What does it mean when the Euro-USD exchange rate changes from $1.00 to $1.20, holding everything else constant?

    <p>Euro has appreciated and German cars sold in the United States become more expensive</p> Signup and view all the answers

    What is a spot transaction in the foreign exchange market?

    <p>Immediate (within two days) exchange of bank deposits</p> Signup and view all the answers

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