BAIB3004 Week 9 24/25

What does an exchange rate allow consumers to do?

• Compare the prices of goods in different countries

• Set interest rates

• Determine the quality of products

• Calculate taxes

If a car costs $44,000 in the US and ¥2,500,000 in Japan, what additional information is needed to compare their prices?

• The colour of the car

• The exchange rate between dollars and yen

• The shipping cost

• The size of the car

In direct (or “British”) terms, how is the exchange rate quoted?

• Foreign currency units per pound

• Pounds per foreign currency unit

• Dollars per yen

• Yen per dollar

What is an indirect (or “Japanese”) exchange rate quotation?

• Pounds per foreign currency unit

• Foreign currency units per dollar

• Dollars per pound

• Euros per yen

If the exchange rate is 150 yen per dollar, how many dollars is ¥2,500,000?

• $16,666.67

• $25,000

• $18,500

• $20,000

If the dollar appreciates against the yen, what happens to the price of American cars in Japan?

• They become cheaper for Japanese consumers

• They become more expensive for Japanese consumers

• The price remains the same

• They are banned from sale

What is the primary difference between spot exchange rates and forward exchange rates?

• Spot rates are fixed, forward rates fluctuate

• Spot rates apply to immediate currency exchange, forward rates apply to future transactions

• Forward rates are always higher than spot rates

• Spot rates are used only by governments

Which of the following is NOT a reason for exchange rate fluctuations?

• Changes in supply and demand for currencies

• Changes in interest rates

• Changes in consumer preferences

• Changes in the colour of currency notes

What is the impact of currency depreciation on imports?

• Imports become cheaper

• Imports become more expensive

• Imports are unaffected

• Imports are banned

Which actor is most likely to use forward exchange contracts to hedge against currency risk?

• A local retailer selling domestic goods only

• An importer paying foreign suppliers in foreign currency

• A tourist exchanging money for vacation

• A government issuing bonds domestically