Which of the following statements is CORRECT? A. Foreign exchange dealers earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase. B. Training Speculators earn a profit by a bid - ask spread on currencies they purchase and sell. C. Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers. D. Arbitragers seek to profit from simultaneous exchange rate differences in different markets.

Which of the following statements is CORRECT? A. Foreign exchange dealers earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase. B. Training Speculators earn a profit by a bid - ask spread on currencies they purchase and sell. C. Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers. D. Arbitragers seek to profit from simultaneous exchange rate differences in different markets.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter17: Multinational Capital Structure And Cost Of Capital

Section: Chapter Questions

Problem 4ST

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Which of the following statements about the foreign exchange market is NOT true? The client market, also referred to as the retail market, is a segment of the FX market. FX brokers match buy and sell orders and carry a large inventory of foreign exchange. Nonbank dealers represent approximately 40% of the market. About 100-200 banks worldwide are prepared to make a market in foreign exchange.
Which of the following is not a characteristic of the foreign exchange market as a perfect market? The volume of daily turnover is extremely high. There is a large number of buyers and sellers operating in the market. There is a free access to information. The products are homogenous.
Financial institutions engage in the purchasing and selling of foreign currencies for all of the following reasons except to: a. Hedge against foreign exchange exposures. b. Allow customers access to foreign markets to transact business. c. Avoid trading in speculative investments. d. Allow itself and/or customers to trade and invest in foreign financial markets.
Which of the following refers to the money market hedge of a company’s payables (receivables)? 1. A company sells (buys) its foreign currency receivables (payables) forward to eliminate its exchange risk exposure. 2. A company borrows (or lends) in foreign currency to hedge its foreign currency receivables (payables), thereby matching its assets and liabilities in the same currency. 3. A company buys a currency at the place where it is priced cheaper and immediately sells it at the place where it is priced higher. 4. A company buys a foreign currency call (put) option to hedge its foreign currency payables (receivables).
Customers get ‘screwed’ in the foreign exchange market because they pay brokerage fees. are charged administrative fees. buy at a higher rate than what they sell at. act on the basis of incomplete information.
Give typing answer with explanation and conclusion Which of the following is an example of foreign exchange risk for an MNC? a. Foreign subsidiary of the MNC may face higher tarriffs b. Foreign subsidiary of the MNC may have to pay higher taxes c. Foreign subsidiary of the MNC may make less sales due to weak foreign currency d. Foreign subsidiary of the MNC may make less sales due to lower consumer income
Leads are deliberate early payments of amounts due to be paid in foreign currency to overseas suppliers, or other foreign currency payments. Leads can avoid the risk that the sterling cost of these payments may rise if the amounts of the payments are quoted in foreign currency and the foreign currency increases in value Under what circumstances can how an international company can use ‘leads and lags’ to protect itself against foreign exchange risk.
1. Which of the following is NOT a main use of foreign exchange markets: (a). Currency Ledging (b). Currency Arbitrade (c). Currency speculation (d). Currency Conversion 2. A company typically has four distribution strategies for entering a new market, to buy licence, to engage in a joint venture, to acquire a local company, or to build its own distribution network from scratch. TRUE/FALSE 3. What is best noted for three principal categories that analyse and interpret how communications and interactions between cultures differ. Context, space, and time. b. What are formal trade barriers _______
The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following? A. Interest rate disparities B. Short-run exposure to exchange rate risk C. Long-run exposure to exchange rate risk D. Political risk associated with the foreign operations E. Translation exposure to exchange rate risk
If you are the manager, you should understand which of the operations do not create benefit from depreciation of the firm's local currency. I. Borrowing in a foreign country and converting the funds to the local currency prior to the depreciation. II. Purchasing foreign supplies. III. Investing in foreign bank accounts denominated in foreign currencies prior to depreciation of the local currency. A. I, IV B. II, IV C. I, II D. II, III
Denomination intermediation refers to: a. The efficiency with which depository institutions provide payment services such as cheque clearing. b. Converting foreign denominated currency into local currency. c. FIs allowing small investors to overcome constraints to buying assets imposed by large minimum denomination size.
Which of the following is not true Large Value Transfer System is an electronic, real time net settlement network The Bank of Canada implements monetary policy by lending money at the prime rate LVTS and ACSS are operated by the Canadian Payments Association The market for settlement balances is where overnight interest rate is determined Financial innovation has caused banks to suffer declines in their cost advantages in acquiring funds, although it has not caused a decline in income advantages banks to suffer a simultaneous decline of cost and income advantages banks to suffer declines in their income advantages in acquiring funds, although it has not caused a decline in cost advantages banks to achieve competitive advantages in both costs and income