Understanding Exchange Rates

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What is the primary factor used to derive forward exchange rates?

Unemployment rates

Money market interest rates (correct)

GDP growth rates

Inflation rates

What does interest rate risk refer to?

Changes in exchange rates

Variations in inflation rates

Fluctuations in GDP

Uncertainty in cash payments and receipts due to interest rate changes (correct)

What is the Futures Rate in relation to currency exchange?

The rate at which one can purchase or sell a specified currency on the settlement date in a futures contract (correct)

The rate at which one can buy or sell currencies in the stock market

The spot rate at a specific point in time

The rate at which banks lend to each other

What is the purpose of valuing real options?

To evaluate investment opportunities that include flexibility and strategic value Signup and view all the answers

Why is valuing real options considered a complex process?

Because it is a matter of debate on the most suitable methodology Signup and view all the answers

What is the central bank's strategy when the ringgit appreciates beyond US$0.2560 = MYR1?

Purchasing excess dollars from the market Signup and view all the answers

According to IRPT, which country will see its currency subject to a depreciation?

The country with higher interest rates Signup and view all the answers

In the expectations theory, what is the relationship between the forward rate and the expected future spot price?

Forward rate is an unbiased predictor of expected future spot price Signup and view all the answers

How does buying pressure on the forward contract affect the price?

Raises the price until it exceeds market consensus Signup and view all the answers

How do money markets differ from other financial markets?

They involve wholesale lending and borrowing Signup and view all the answers

In what scenario could a company opt for a money market hedge over a forward contract?

When aiming to achieve a similar result as a forward contract Signup and view all the answers

How does changes in exchange rates affect a country's economy?

Influence the prices of goods and services produced domestically and overseas Signup and view all the answers

In a stabilized exchange rate system, what is the major difference compared to a managed float system?

The central bank has a public commitment to maintain the exchange rate within specific limits Signup and view all the answers

What is the modus operandi of central bank intervention under a stabilized exchange rate system?

Public commitment to maintain the exchange rate within specific limits Signup and view all the answers

How does a stabilized exchange rate system differ from a managed float system?

Stabilized systems have a public commitment to specific exchange rate limits Signup and view all the answers

What is the value of an exchange rate?

The value of one currency in terms of another currency Signup and view all the answers

Why do exchange rates matter to Australia's economy?

Due to their influence on trade and financial flows between countries Signup and view all the answers

Understanding Exchange Rates

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