IFM QUIZLET

1) What is the name of the contract where corporations, institutional investors, and individuals
are required to pay or to receive a specific amount of foreign currency at a specific exchange
rate at a
particular date in the future?
A) forward foreign exchange market
B) forward currency contract
C) forward rate contract
D) future hedge contract

2) One important purpose of the forward markets for foreign exchange allows global traders to
protect themselves by ________.
A) hedging
B) arbitraging
C) speculating

3) What is the name of the exchange rate specified in the forward contract?
A) spot rate
B) forward rate
C) future exchange rate
D) cross-rate

4) If you want to hedge and owe a firm a foreign currency in the future, you would
A) buy the foreign currency forward.
B) sell the foreign currency forward.
C) speculate on the possibility to not hedge.
D) buy the currency now and deposit into a bank account until needed.

5) A swap transaction in the forward market involves the simultaneous sale and purchase of a
certain amount of foreign currency for ________.
A) one specific date in the future
B) many different dates in the future
C) two different dates in the future
D) speculation under the correct conditions

In a forward contract no monies change hands until the maturity date of the contract known as
the ________,
A) spot value date
B) exercise date
C) forward contract date
D) forward settlement date

7) In the forward market the bid-ask spreads begin to ________ as the maturity date of the
contract grows closer.
A) widen
B) narrow
C) stabilize
D) disappear

8) If the forward price of a currency contract is higher than the spot rate, the currency is said to
be at a
A) forward discount.
B) forward premium.
C) future expected exchange rate.
D) forward swap rate.

9) If the forward price of a currency contract is lower than the spot rate, the currency is said to
be at a
A) forward discount.
B) forward premium.
C) future expected exchange rate.
D) forward swap rate.

10) What is a spot-forward swap?

A) the purchase of foreign currency spot against the sale of the same amount of foreign
currency forward
B) the sale of foreign currency spot against the purchase of the same amount of the foreign
currency forward
C) both the purchase or sale of a foreign currency spot against the sale or purchase of
the foreign currency forward
D) the purchase of a foreign currency forward contract at the outright rate

11) What is the term for the conditional mean of the probability distribution of future spot rates?
A) the expected swap rate
B) the future exchange rate
C) the outright rate
D) the expected future spot rate
12) If the euro is selling at a premium relative to the USD in the forward market, is the forward
price of USD /EUR larger or smaller than the spot price of the USD /EUR?
A) larger
B) smaller
C) indeterminate
D) the same

If the USD is selling at a discount relative to the yen in the forward market, is the forward price
of JPY/USD larger or smaller that the spot price of the JPY/USD?
A) larger
B) smaller
C) indeterminate
D) the same

14) What is the name of the action that uses derivative securities to reduce risks arising from
underlying business transactions in financial markets?
A) forward contracts
B) hedging
C) forward rates
D) speculating

15) Why are the bid-ask spreads larger in the forward market than in the spot market?
A) because the forward market is less liquid than the spot market
B) because the spot market is more volatile than the forward market
C) because the forward market is more liquid than the spot market
D) because the spot market is less liquid than the forward market

16) Which one of the following options is not a type of swap?

A) the sale of foreign currency short-term forward against the purchase of foreign
currency forward
B) the purchase of foreign currency short-term forward against the sale of foreign currency long-
term forward
C) the purchase of foreign currency spot against the sale of foreign currency forward
D) the sale of foreign currency short-term forward against the purchase of foreign currency long-
term forward
17) One of the major reasons for the existence of the forward market is to ________.
A) provide a location for all currency traders to assemble and trade
B) manage currency risk especially risk associated with a transaction
C) hedge transactions involving foreign currency that occurred in the past
D) prevent default in the transaction

18) When does delivery occur on a 90-day forward contract?

A) in 90 days corresponding to two business days preceding the third Wednesday of the month
B) immediately but the contract is not closed for 90 more days
C) in 90 days corresponding to the calendar date of the spot value date
D) two business days following the spot value date

19) What is meant by the conditional future spot rate?

A) the forward rate
B) the forecasted future spot rate
C) the conditional variance of the probability distribution of future spot rates
D) the conditional mean of the probability distribution of future spot rates

20) How much of the probability distribution of future spot rates is between plus or minus two
standard deviations?
A) 95.44%
B) .167%
C) 98%
D) 4.55%

21) From the perspective of the MNC, the most important purpose of the forward markets is the
process of ________.
A) hedging
B) arbitraging
C) speculating
D) preventing default

22) On December 3,2001, spot Japanese yen were sold at $0.008058. Suppose the 180-day
forward Japanese yen was selling at a 1.91% annualized premium, what is the 180-day forward
rate of the yen?
A) 0.008245
B) 0.008135
C) 0.008457
D) 0.008550
3) Suppose the spot rate and forward rate for the British pound are $1.4248 and $1.4179
respectively. Assume the forward pound is selling at a 1.94% annualized discount, what is the
number of days of the forward contract?
A) 180 days
B) 120 days
C) 90 days
D) 60 days

4) It is 1998. The spot and 30-day forward rates for the Dutch guilder are $.3075 and $.3120,
respectively. The guilder is said to be selling at a forward
A) premium of 16.83%
B) premium of 17.56%
C) discount of 6.39%

5) If you were asked to forecast the future spot rate of a currency, how much of the probability
distribution of the rate is between plus or minus 2 standard deviations?
A) 12.55%
B) 24.55%
C) 62.87%
D) 95.44%