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Foreign Exchange Analysis
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Question 1 of 30
1. Question
An economic system is a means by which societies or governments organize and distribute available resources, services, and goods across a geographic region or country. Which of the following is the key role of an economic system?
Correct
The key role of an economic system is to ensure efficient allocation. Economic systems are designed to collect savings in an economy and allocate the available resources efficiently to those who either seek funds for current consumption in excess of what their resources would permit or to invest in productive assets.
Incorrect
The key role of an economic system is to ensure efficient allocation. Economic systems are designed to collect savings in an economy and allocate the available resources efficiently to those who either seek funds for current consumption in excess of what their resources would permit or to invest in productive assets.
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Question 2 of 30
2. Question
The efficient and free flow of resources from one economic entity to another is a sine qua non for a modern economy. Which of the following is a result of a larger flow of resources and a more efficient allocation of those resources?
I. A greater chance that the requirements of all economic agents can be satisfied.
II. A lesser chance that the requirements of all economic agents can be satisfied.
III. The greater the odds that the output of the economy as a whole will be maximized.
IV. The smaller the odds that the output of the economy as a whole will be maximized.Correct
The key role of an economic system is to ensure efficient allocation. The larger the flow of resources and the more efficient their allocation, the greater the chance that the requirements of all economic agents can be satisfied, and consequently the greater the odds that the output of the economy as a whole will be maximized.
Incorrect
The key role of an economic system is to ensure efficient allocation. The larger the flow of resources and the more efficient their allocation, the greater the chance that the requirements of all economic agents can be satisfied, and consequently the greater the odds that the output of the economy as a whole will be maximized.
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Question 3 of 30
3. Question
When formulating economic policy, it is neither feasible nor desirable to separate an economy from the societal framework within which it operates, especially when defining appropriate measures of success. Which of the following is the success of an economy gauged by?
Correct
The success of an economy is gauged by the extent of wealth creation. Economists and statisticians use several methods to track economic growth. Some economists posit that total spending is a consequence of productive output.
Incorrect
The success of an economy is gauged by the extent of wealth creation. Economists and statisticians use several methods to track economic growth. Some economists posit that total spending is a consequence of productive output.
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Question 4 of 30
4. Question
Economic systems are designed to collect savings in an economy and allocate the available resources efficiently to those who either seek funds for current consumption in excess of what their resources would permit or to invest in productive assets. Which of the following statements describes a successful economy?
Correct
A successful economy is one that makes and implements judicious economic decisions from the standpoints of both production and distribution. In an efficient economy, resources will be allocated to those economic agents who are in a position to derive the optimal value of output by employing the resources allocated to them.
Incorrect
A successful economy is one that makes and implements judicious economic decisions from the standpoints of both production and distribution. In an efficient economy, resources will be allocated to those economic agents who are in a position to derive the optimal value of output by employing the resources allocated to them.
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Question 5 of 30
5. Question
An economic system is a system of production, resource allocation, exchange, and distribution of goods and services in a society or a given geographic area. Which of the following are types of economic systems?
I. Military economies
II. Command economies
III. Free-market economies
IV. Civilian economiesCorrect
Economic systems may be classified as either command economies or free-market economies. These are the two extreme ends of the economic spectrum. Most modern economies tend to display characteristics of both kinds of systems, and they differ only with respect to the level of government control.
Incorrect
Economic systems may be classified as either command economies or free-market economies. These are the two extreme ends of the economic spectrum. Most modern economies tend to display characteristics of both kinds of systems, and they differ only with respect to the level of government control.
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Question 6 of 30
6. Question
The efficient and free flow of resources from one economic entity to another is a sine qua non for a modern economy. In which of the following economies are all production and allocation decisions made by a central planning authority?
Correct
Like that of the former Soviet Union, in a command economy, all production and allocation decisions are made by a central planning authority. The planning authority is expected to estimate the resource requirements of various economic agents and then rank them in order of priority in relevance to social needs.
Incorrect
Like that of the former Soviet Union, in a command economy, all production and allocation decisions are made by a central planning authority. The planning authority is expected to estimate the resource requirements of various economic agents and then rank them in order of priority in relevance to social needs.
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Question 7 of 30
7. Question
An economic system is a means by which governments or societies organize and distribute available resources, services, and goods across a country or geographic region. In which of the following economic systems are economic agents expected to make the most profitable use of the resources at their disposal?
Correct
In a market economy, economic agents are expected to make the most profitable use of the resources at their disposal. Economic agents who generate surpluses of income in excess of expenditures will be able to attract more and better resources.
Incorrect
In a market economy, economic agents are expected to make the most profitable use of the resources at their disposal. Economic agents who generate surpluses of income in excess of expenditures will be able to attract more and better resources.
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Question 8 of 30
8. Question
Which of the following terms is defined as the revenues from sales minus the costs of production of the goods sold?
Correct
Profit is defined as the revenues from sales minus the costs of production of the goods sold. Profit is a function of the prices of the inputs or the factors of production—such as land, labor, and capital—and the prices of the output.
Incorrect
Profit is defined as the revenues from sales minus the costs of production of the goods sold. Profit is a function of the prices of the inputs or the factors of production—such as land, labor, and capital—and the prices of the output.
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Question 9 of 30
9. Question
Every decisionmaker will have a required rate of return on investment. Under which of the following circumstances is a project considered to be worth the investment?
Correct
A project is considered to be worth the investment only if its expected rate of return is greater than the cost of the capital being invested. The threshold return, or the return above which the venture will be deemed profitable, is the cost of capital for the decision-maker.
Incorrect
A project is considered to be worth the investment only if its expected rate of return is greater than the cost of the capital being invested. The threshold return, or the return above which the venture will be deemed profitable, is the cost of capital for the decision-maker.
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Question 10 of 30
10. Question
Economic agents are consumers, producers, and/or influencers of capital markets and the economy at large. Economic agents are usually divided into categories or sectors. Which of the following is/are part of those categories/sectors?
I. Government
II. Household
III. Business
IV. Religious bodiesCorrect
An economic agent is an actor and more specifically a decision-maker in a model of some aspect of the economy. Economic agents are usually divided into three categories or sectors. They are as follows:
– Government
– Business
– HouseholdIncorrect
An economic agent is an actor and more specifically a decision-maker in a model of some aspect of the economy. Economic agents are usually divided into three categories or sectors. They are as follows:
– Government
– Business
– Household -
Question 11 of 30
11. Question
Economic agents are usually divided into three categories or sectors (government, business, and household). Which of the following does the government sector consist of?
I. Generic government.
II. Central or federal government.
III. State or provincial governments.
IV. Local governments or municipalities.Correct
Economic agents influence the economy at large and capital markets specifically. The government sector consists of the following:
– Central or federal government.
– State or provincial governments.
– Local governments or municipalities.Incorrect
Economic agents influence the economy at large and capital markets specifically. The government sector consists of the following:
– Central or federal government.
– State or provincial governments.
– Local governments or municipalities. -
Question 12 of 30
12. Question
The business sector consists of various types. Which of the following refers to a business owned by a single person and is the easiest way to start a business?
I. A proprietorship
II. A business
III. A sole proprietorship
IV. A communal businessCorrect
A proprietorship, also known as a sole proprietorship, is a business owned by a single person and is the easiest way to start a business. An owner may do business in his or her own name or using a trade name. The owner is fully responsible for all debts and obligations of the business.
Incorrect
A proprietorship, also known as a sole proprietorship, is a business owned by a single person and is the easiest way to start a business. An owner may do business in his or her own name or using a trade name. The owner is fully responsible for all debts and obligations of the business.
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Question 13 of 30
13. Question
The start-up costs of a sole proprietorship are usually fairly low compared to other forms of business. Which of the following are sources of funds for a sole proprietorship business?
I. A pool of funds from investors.
II. The owner’s personal investment.
III. A loan from a commercial bank.
IV. A pool of funds from employees.Correct
Usually, sources of funds for a sole proprietorship include the owner’s personal investment and a loan from a commercial bank. Unlike a corporation, such businesses face relative difficulties in raising additional capital if and when they choose to expand the scope of their operations.
Incorrect
Usually, sources of funds for a sole proprietorship include the owner’s personal investment and a loan from a commercial bank. Unlike a corporation, such businesses face relative difficulties in raising additional capital if and when they choose to expand the scope of their operations.
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Question 14 of 30
14. Question
A partnership is a business entity owned by at least two people or partners. Which of the following are categories of partnerships in many countries?
I. A limited partnership
II. A general partnership
III. A definite partnership
IV. An indefinite partnershipCorrect
There are two categories of partnerships in many countries: general partnerships and limited partnerships. In a general partnership, the partners have unlimited liability and a partner is personally responsible not only for her own acts but also for the actions of her other partners as well as employees. In a limited partnership, there are two categories of partners, namely general partners and limited partners. The general partners are usually a corporation and have management control. They are characterized by unlimited liability.
Incorrect
There are two categories of partnerships in many countries: general partnerships and limited partnerships. In a general partnership, the partners have unlimited liability and a partner is personally responsible not only for her own acts but also for the actions of her other partners as well as employees. In a limited partnership, there are two categories of partners, namely general partners and limited partners. The general partners are usually a corporation and have management control. They are characterized by unlimited liability.
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Question 15 of 30
15. Question
A corporation or a limited company is a legal entity that is distinct and separate from its owners. Which of the following refers to owners of a corporation or a limited company?
I. Founding members
II. Co-founders
III. Shareholders
IV. StockholdersCorrect
A corporation or a limited company is a legal entity that is distinct and separate from its owners, who are referred to as shareholders or stockholders. A corporation may and usually will have multiple owners as well as a number of employees on its payroll.
Incorrect
A corporation or a limited company is a legal entity that is distinct and separate from its owners, who are referred to as shareholders or stockholders. A corporation may and usually will have multiple owners as well as a number of employees on its payroll.
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Question 16 of 30
16. Question
During a given financial year, every economic unit, irrespective of which sector it may belong to, will get some form of income in the course of its operations and will also incur expenditure in some form. Into which of the following categories can an economic unit be classified?
Correct
Depending on the relationship between the income earned and the expenditure incurred, an economic unit may be classified into one of the following three categories:
– A balanced budget unit.
– A surplus budget unit.
– A deficit budget unit.Incorrect
Depending on the relationship between the income earned and the expenditure incurred, an economic unit may be classified into one of the following three categories:
– A balanced budget unit.
– A surplus budget unit.
– A deficit budget unit. -
Question 17 of 30
17. Question
Which of the following refers to the record of all economic transactions between a country and the rest of the world (ROW)?
Correct
The record of all economic transactions between a country and the rest of the world (ROW) is known as its balance of payments (BOP). It is a record of a country’s trade in goods, services, and financial assets with the rest of the world. In other words, it is a record of all economic transactions between a country and the outside world.
Incorrect
The record of all economic transactions between a country and the rest of the world (ROW) is known as its balance of payments (BOP). It is a record of a country’s trade in goods, services, and financial assets with the rest of the world. In other words, it is a record of all economic transactions between a country and the outside world.
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Question 18 of 30
18. Question
The balance of payments (BOP) is typically broken into major categories of accounts, each of which is further subdivided into various components. Which of the following is a category of account of the balance of payments?
I. The current account.
II. The capital account.
III. The reserve account.
IV. The dividend account.Correct
The BOP is typically broken into three major categories of accounts, each of which is further subdivided into various components. The major categories are as follows:
– The current account.
– The capital account.
– The reserve account.Incorrect
The BOP is typically broken into three major categories of accounts, each of which is further subdivided into various components. The major categories are as follows:
– The current account.
– The capital account.
– The reserve account. -
Question 19 of 30
19. Question
Which of the following categories of accounts is an accounting head that includes imports and exports of goods and services, as well as earnings on investments?
Correct
The current account includes imports and exports of goods and services, as well as earnings on investments. A current account that shows a deficit indicates that the country’s liabilities have increased; if it shows a surplus, it means that a country’s assets held abroad have increased.
Incorrect
The current account includes imports and exports of goods and services, as well as earnings on investments. A current account that shows a deficit indicates that the country’s liabilities have increased; if it shows a surplus, it means that a country’s assets held abroad have increased.
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Question 20 of 30
20. Question
Which of the following asset types is one that is acceptable as a means of payment in international transactions and that is held by and exchanged between the monetary authorities of various countries?
Correct
A reserve asset is one that is acceptable as a means of payment in international transactions and that is held by and exchanged between the monetary authorities of various countries. It consists of monetary gold, assets denominated in foreign currencies, special drawing rights (SDRs), and reserve positions at the International Monetary Fund (IMF).
Incorrect
A reserve asset is one that is acceptable as a means of payment in international transactions and that is held by and exchanged between the monetary authorities of various countries. It consists of monetary gold, assets denominated in foreign currencies, special drawing rights (SDRs), and reserve positions at the International Monetary Fund (IMF).
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Question 21 of 30
21. Question
Which of the following refers to a claim against the income or wealth of a business firm, a household, or a government agency?
Correct
A financial asset is a claim against the income or wealth of a business firm, a household, or a government agency. It is represented usually by a certificate, a receipt, a computer record file, or another legal document, and is usually created by or is related to the lending of money.
Incorrect
A financial asset is a claim against the income or wealth of a business firm, a household, or a government agency. It is represented usually by a certificate, a receipt, a computer record file, or another legal document, and is usually created by or is related to the lending of money.
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Question 22 of 30
22. Question
Which of the following refers to a financial claim issued by a borrower to a lender of funds?
Correct
A debt instrument is a financial claim issued by a borrower to a lender of funds. A debt instrument is a tool an entity can utilize to raise capital. It is a documented, binding obligation that provides funds to an entity in return for a promise from the entity to repay a lender or investor in accordance with terms of a contract.
Incorrect
A debt instrument is a financial claim issued by a borrower to a lender of funds. A debt instrument is a tool an entity can utilize to raise capital. It is a documented, binding obligation that provides funds to an entity in return for a promise from the entity to repay a lender or investor in accordance with terms of a contract.
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Question 23 of 30
23. Question
Which of the following refers to an intermediary who arranges trades for his clients by helping them to locate suitable counterparties?
Correct
An intermediary who arranges trades for his clients by helping them to locate suitable counterparties is referred to as a broker. Brokers do not finance the transaction, that is, they do not carry an inventory of the assets being sought. They are merely facilitators of a trade who receive a processing fee for services rendered.
Incorrect
An intermediary who arranges trades for his clients by helping them to locate suitable counterparties is referred to as a broker. Brokers do not finance the transaction, that is, they do not carry an inventory of the assets being sought. They are merely facilitators of a trade who receive a processing fee for services rendered.
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Question 24 of 30
24. Question
For which of the following reasons do we require market intermediaries such as brokers and dealers?
I. When an investor seeks to buy assets in the secondary market, she has to locate a suitable counterparty.
II. When an investor seeks to sell assets in the secondary market, she has to locate a suitable counterparty.
III. When assets depreciate in value in the primary market, we need counterparties to cushion the effect.
IV. When assets increase in value in the primary market, we need counterparties to cushion the effect.Correct
The reason we require market intermediaries such as brokers and dealers is that when an investor seeks to buy or sell assets in the secondary market, she has to locate a suitable counterparty. A counterparty not only should be available but also there should be compatibility in terms of price expectations of the two parties, and the quantity that each one is seeking to transact.
Incorrect
The reason we require market intermediaries such as brokers and dealers is that when an investor seeks to buy or sell assets in the secondary market, she has to locate a suitable counterparty. A counterparty not only should be available but also there should be compatibility in terms of price expectations of the two parties, and the quantity that each one is seeking to transact.
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Question 25 of 30
25. Question
A swap transaction entails the swapping of cash flows between two counterparties. Which of the following are broad categories of swaps?
I. Financial swaps
II. Interest-rate swaps
III. Currency swaps
IV. Physical swapsCorrect
There are two broad categories of swaps: interest-rate swaps and currency swaps. Payments in interest-rate swap (IRS) are denominated in the same currency, while payments in currency swaps are denominated in two different currencies.
Incorrect
There are two broad categories of swaps: interest-rate swaps and currency swaps. Payments in interest-rate swap (IRS) are denominated in the same currency, while payments in currency swaps are denominated in two different currencies.
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Question 26 of 30
26. Question
The price at which a dealer is willing to buy from a client is called the bid, and the price at which he is willing to sell to a client is called the ask. Which of the following refers to the difference between the bid and the ask?
I. The bid-ask spread.
II. The B-spread.
III. The BA spread.
IV. The price spread.Correct
The difference between the bid and the ask is called the bid-ask spread or simply the spread. Purchase at the bid followed by a subsequent sale at the ask will result in a profit equal to the spread.
Incorrect
The difference between the bid and the ask is called the bid-ask spread or simply the spread. Purchase at the bid followed by a subsequent sale at the ask will result in a profit equal to the spread.
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Question 27 of 30
27. Question
Which of the following persons will sit one-on-one with his client seeking to ascertain his investment objectives in order to provide suitable recommendations?
I. A regular broker
II. A regular dealer
III. A full-service broker
IV. A full-service dealerCorrect
A regular broker, also referred to as a full-service broker, will sit one-on-one with his client seeking to ascertain his investment objectives in order to provide suitable recommendations. He will also provide extensive research reports to facilitate decision making.
Incorrect
A regular broker, also referred to as a full-service broker, will sit one-on-one with his client seeking to ascertain his investment objectives in order to provide suitable recommendations. He will also provide extensive research reports to facilitate decision making.
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Question 28 of 30
28. Question
A trader is said to have a long position when he owns an asset. Which of the following statements is true about the gains or losses of an investor with a long position?
I. An investor with a long position will gain if the price subsequently falls.
II. An investor with a long position will gain if the price subsequently rises.
III. An investor with a long position will lose if the price subsequently rises.
IV. An investor with a long position will lose if the price subsequently falls.Correct
An investor with a long position will gain if the price subsequently rises and will lose if it subsequently falls. A rise in price will constitute a capital gain at the time of sale, whereas a price decline is termed a capital loss. The principle behind the assumption of such a position is buy low and sell high.
Incorrect
An investor with a long position will gain if the price subsequently rises and will lose if it subsequently falls. A rise in price will constitute a capital gain at the time of sale, whereas a price decline is termed a capital loss. The principle behind the assumption of such a position is buy low and sell high.
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Question 29 of 30
29. Question
An investment banker is an investment professional who facilitates the issuance of securities in the primary market. Through which of the following ways do investment bankers help the issue process?
I. They provide insurance to the issuer by underwriting the issue.
II. They sell liquidity to the buy-side traders by giving them the opportunity to trade whenever they desire.
III. They help the borrower comply with various legal and procedural requirements that are usually mandatory for such issues.
IV. They stand ready to sell the portion of the issue that remains unsubscribed.Correct
Investment bankers help the issue process in two ways. They are as follows:
– Help the borrower comply with various legal and procedural requirements that are usually mandatory for such issues.
– Provide insurance to the issuer by underwriting the issue. This means that they stand ready to buy that portion of the issue that remains unsubscribed if the issue were to be undersubscribed.Incorrect
Investment bankers help the issue process in two ways. They are as follows:
– Help the borrower comply with various legal and procedural requirements that are usually mandatory for such issues.
– Provide insurance to the issuer by underwriting the issue. This means that they stand ready to buy that portion of the issue that remains unsubscribed if the issue were to be undersubscribed. -
Question 30 of 30
30. Question
Most public offerings are usually underwritten because issuers are more comfortable with such arrangements. Which of the following refers to the risk that the bank may have to buy the unsold securities in the event of undersubscription?
Correct
Devolvement risk is the risk that the bank may have to buy the unsold securities in the event of undersubscription. Such an eventuality will inevitably lead to a loss for the bank, in the sense that the shares so acquired will have to be subsequently offloaded in the market at a price that is lower than the issue price.
Incorrect
Devolvement risk is the risk that the bank may have to buy the unsold securities in the event of undersubscription. Such an eventuality will inevitably lead to a loss for the bank, in the sense that the shares so acquired will have to be subsequently offloaded in the market at a price that is lower than the issue price.