Question Details

Forward markets for currencies of developing countries 



1. According to the text, the forward rate is commonly used for: 
A) hedging. 
B) Eurocurrency transactions. 
C) Eurocredit transactions. 
D) Eurobond transactions.

2. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 
100,000 in 90 days, it could: 
A) obtain a 90-day forward purchase contract on euros. 
B) obtain a 90-day forward sale contract on euros. 
C) purchase euros 90 days from now at the spot rate. 
D) sell euros 90 days from now at the spot rate.

3. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need 
C$200,000 in 90 days to make payment on imports from Canada, it could: 
A) obtain a 90-day forward purchase contract on Canadian dollars. 
B) obtain a 90-day forward sale contract on Canadian dollars. 
C) purchase Canadian dollars 90 days from now at the spot rate. 
D) sell Canadian dollars 90 days from now at the spot rate.

4. Which of the following is not true with respect to spot market liquidity? 
A) The more willing buyers and sellers there are, the more liquid a market is. 
B) The spot markets for heavily traded currencies such as the Japanese yen are very 
liquid. 
C) A currency's liquidity affects the ease with which an MNC can obtain or sell that currency. 
D) If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate.

5. Forward markets for currencies of developing countries are: 
A) prohibited. 
B) less liquid than markets for developed countries. 
C) more liquid than markets for developed countries. 
D) only available for use by government agencies.



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