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Foreign Exchange Analysis
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Question 1 of 30
1. Question
The international bond market provides borrowers with a source of medium to long-term funds. Which of the following are constituents of the borrowers?
I. Individuals
II. Multinational corporations
III. Domestic corporations
IV. Supranational financial institutionsCorrect
The international bond market provides borrowers with a source of medium to long-term funds. Borrowers include multinational corporations, domestic corporations, governments, and national as well as supranational financial institutions. It gives investors in the debt markets a way to diversify their portfolios over several different currencies.
Incorrect
The international bond market provides borrowers with a source of medium to long-term funds. Borrowers include multinational corporations, domestic corporations, governments, and national as well as supranational financial institutions. It gives investors in the debt markets a way to diversify their portfolios over several different currencies.
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Question 2 of 30
2. Question
It is not necessary that all the securities chosen should be from the same country. Transnational diversification enables investors to take the diversification process a step further. Which of the following are segments of the international bond market?
I. Eurobonds
II. Foreign bonds
III. National bonds
IV. Dollar bondsCorrect
The international bond market consists of two broad segments. They are Eurobonds and foreign bonds. International bonds are usually corporate bonds and they can offer portfolio diversification, but are highly subject to currency risk.
Incorrect
The international bond market consists of two broad segments. They are Eurobonds and foreign bonds. International bonds are usually corporate bonds and they can offer portfolio diversification, but are highly subject to currency risk.
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Question 3 of 30
3. Question
Which of the following types of bonds are bonds denominated in one or more currencies other than the currency of the country in which they are sold?
Correct
Eurobonds are bonds denominated in one or more currencies other than the currency of the country in which they are sold. Bonds denominated in a currency other than the Japanese yen and sold in Japan would be called Eurobonds.
Incorrect
Eurobonds are bonds denominated in one or more currencies other than the currency of the country in which they are sold. Bonds denominated in a currency other than the Japanese yen and sold in Japan would be called Eurobonds.
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Question 4 of 30
4. Question
Which of the following types of bonds refers to a bond that is denominated in the currency of the country in which it is sold, but issued by an entity from a foreign country?
Correct
Foreign bonds refer to bonds that are denominated in the currency of the country in which it is sold but issued by an entity from a foreign country. If a U.S. company were to sell Yen-denominated bonds in Japan, it would be classified as a foreign bond.
Incorrect
Foreign bonds refer to bonds that are denominated in the currency of the country in which it is sold but issued by an entity from a foreign country. If a U.S. company were to sell Yen-denominated bonds in Japan, it would be classified as a foreign bond.
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Question 5 of 30
5. Question
If a Japanese company were to issue yen-denominated bonds in Japan, it would be categorized as a domestic bond. For which of the following reasons is it categorized as a domestic bond?
Correct
Because the issuer, as well as the currency of issue, are local, yen-denominated bonds issued in Japan by a Japanese company would be categorized as domestic bonds. A domestic bond is an obligation of a domestic issuer, denominated in domestic currency, and sold and traded in the domestic market.
Incorrect
Because the issuer, as well as the currency of issue, are local, yen-denominated bonds issued in Japan by a Japanese company would be categorized as domestic bonds. A domestic bond is an obligation of a domestic issuer, denominated in domestic currency, and sold and traded in the domestic market.
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Question 6 of 30
6. Question
The Eurobond market has grown much more rapidly than the foreign bond market for several reasons. Which of the following reasons are true?
I. They can be brought to the market quickly and with less disclosure.
II. Eurobond issues are not subject to the regulations of the country in whose currency they are denominated.
III. Eurobond issues are regulated by the market regulator of the country.
IV. They give the issuer of the bonds less flexibility when it comes to taking advantage of favorable market conditions.Correct
The Eurobond market has grown much more rapidly than the foreign bond market for several reasons. These reasons include the following:
– Eurobond issues are not subject to the regulations of the country in whose currency they are denominated.
– They can be brought to the market quickly and with less disclosure. This gives the issuer of the bonds greater flexibility to take advantage of favorable market conditions.Incorrect
The Eurobond market has grown much more rapidly than the foreign bond market for several reasons. These reasons include the following:
– Eurobond issues are not subject to the regulations of the country in whose currency they are denominated.
– They can be brought to the market quickly and with less disclosure. This gives the issuer of the bonds greater flexibility to take advantage of favorable market conditions. -
Question 7 of 30
7. Question
There are two broad categories of securities: registered securities and bearer securities. In the case of registered securities, a record is maintained of the owners at any point in time by an entity. What is this entity referred to as?
I. A registrar
II. A holder
III. A bearer
IV. A share transfer agentCorrect
In the case of registered securities, a record is maintained of the owners at any point in time by an entity known as a registrar or share transfer agent. Each time the security is transferred from one investor to another, the records are updated.
Incorrect
In the case of registered securities, a record is maintained of the owners at any point in time by an entity known as a registrar or share transfer agent. Each time the security is transferred from one investor to another, the records are updated.
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Question 8 of 30
8. Question
Dual or multiple listing allows the shares of a company to be traded on the exchanges of many different countries. In which of the following forms is foreign equity traded in global markets?
Correct
Foreign equity is traded in global markets in the form of depository receipts (DRs). The depositary receipt gives investors the opportunity to hold shares in the equity of foreign countries and gives them an alternative to trading on an international market.
Incorrect
Foreign equity is traded in global markets in the form of depository receipts (DRs). The depositary receipt gives investors the opportunity to hold shares in the equity of foreign countries and gives them an alternative to trading on an international market.
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Question 9 of 30
9. Question
Dual or multiple listing allows the shares of a company to be traded on the exchanges of many different countries. In which of the following forms is foreign equity traded on the U.S. exchanges?
Correct
Foreign equity is traded on the U.S. exchanges in the form of American depository receipts (ADRs). ADRs represent a feasible, liquid way for U.S. investors to purchase stock in companies abroad. Foreign firms also benefit from ADRs, as they make it easier to attract American investors and capital, without the hassle and expense of listing themselves on U.S. stock exchanges.
Incorrect
Foreign equity is traded on the U.S. exchanges in the form of American depository receipts (ADRs). ADRs represent a feasible, liquid way for U.S. investors to purchase stock in companies abroad. Foreign firms also benefit from ADRs, as they make it easier to attract American investors and capital, without the hassle and expense of listing themselves on U.S. stock exchanges.
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Question 10 of 30
10. Question
Although an American investor can always acquire a share that is traded on a foreign stock exchange, it is a lot simpler in practice to invest in an ADR. There are two broad categories of ADR programs. Which of the following is a category of ADR programs?
I. South ADR program
II. West ADR program
III. Unsponsored ADR program
IV. Sponsored ADR programCorrect
There are two broad categories of ADR programs. They are sponsored programs and unsponsored programs. ADRs are issued by depository banks outside the U.S. and trade just like shares on American stock exchanges in U.S. dollars. These securities trade on the over-the-counter market rather than on American stock exchanges.
Incorrect
There are two broad categories of ADR programs. They are sponsored programs and unsponsored programs. ADRs are issued by depository banks outside the U.S. and trade just like shares on American stock exchanges in U.S. dollars. These securities trade on the over-the-counter market rather than on American stock exchanges.
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Question 11 of 30
11. Question
Which of the following statements best describes the term fungibility?
Correct
Fungibility means the ability to interchange with an identical item. Fungible assets simplify the exchange and trade processes, as fungibility implies equal value between the assets.
Incorrect
Fungibility means the ability to interchange with an identical item. Fungible assets simplify the exchange and trade processes, as fungibility implies equal value between the assets.
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Question 12 of 30
12. Question
Which of the following terms refers to the strategy of making costless, riskless profits by simultaneously transacting in two or more markets?
Correct
The strategy of making costless, riskless profits by simultaneously transacting in two or more markets is referred to as arbitrage. Arbitrage is one of the fundamental principles underlying modern finance theory.
Incorrect
The strategy of making costless, riskless profits by simultaneously transacting in two or more markets is referred to as arbitrage. Arbitrage is one of the fundamental principles underlying modern finance theory.
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Question 13 of 30
13. Question
One of the basic tenets of finance is the concept of risk aversion. Which of the following statements about the concept of risk aversion is false?
I. The higher the risk associated with an investment, the lower will be the premium.
II. An investor will demand a risk premium for bearing a certain level of risk.
III. The higher the risk associated with an investment, the greater will be the premium.
IV. The lower the risk associated with an investment, the greater will be the premium.Correct
The term risk-averse describes the investor who chooses the preservation of capital over the potential for a higher-than-average return. One of the basic tenets of finance is the concept of risk aversion; that is, an investor will demand a risk premium for bearing a certain level of risk, and the higher the risk associated with an investment, the greater will be the premium demanded over and above the riskless rate of interest.
Incorrect
The term risk-averse describes the investor who chooses the preservation of capital over the potential for a higher-than-average return. One of the basic tenets of finance is the concept of risk aversion; that is, an investor will demand a risk premium for bearing a certain level of risk, and the higher the risk associated with an investment, the greater will be the premium demanded over and above the riskless rate of interest.
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Question 14 of 30
14. Question
Although ADRs are the most common type of depository receipts, there are other similar securities called global depository receipts (GDRs). Which of the following is a major difference between a GDR and an ADR?
Correct
Although ADRs are the most common type of depository receipts, there are other similar securities called global depository receipts (GDRs). A GDR differs from an ADR in the sense that it is offered to investors in two or more markets outside the issuer’s home country. Most such issues will include a tranche for U.S. investors, as well as a separate tranche for international investors.
Incorrect
Although ADRs are the most common type of depository receipts, there are other similar securities called global depository receipts (GDRs). A GDR differs from an ADR in the sense that it is offered to investors in two or more markets outside the issuer’s home country. Most such issues will include a tranche for U.S. investors, as well as a separate tranche for international investors.
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Question 15 of 30
15. Question
Which of the following types of risks is the risk that the price of the security at the time of purchase may be higher than its price at the point of a subsequent sale?
I. Price risk
II. Market risk
III. Credit risk
IV. Resale riskCorrect
The risk that the price of the security at the time of purchase may be higher than its price at the point of a subsequent sale is referred to as market risk or price risk. It is the risk that there could be a capital loss for the investor. All marketable securities are subject to such risk.
Incorrect
The risk that the price of the security at the time of purchase may be higher than its price at the point of a subsequent sale is referred to as market risk or price risk. It is the risk that there could be a capital loss for the investor. All marketable securities are subject to such risk.
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Question 16 of 30
16. Question
Which of the following terms refers to a series of payments made at equally spaced intervals of time?
Correct
An annuity is a series of payments made at equally spaced intervals of time. The income received from an annuity is taxed at regular income tax rates, not capital gains rates, which are usually lower.
Incorrect
An annuity is a series of payments made at equally spaced intervals of time. The income received from an annuity is taxed at regular income tax rates, not capital gains rates, which are usually lower.
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Question 17 of 30
17. Question
An annuity is a series of payments made at equally spaced intervals of time. If all the payments are identical, then we term it as a level annuity. Which of the following is/are examples of level annuity?
I. Insurance premiums.
II. Monthly installments on automobile loans.
III. Monthly installments on housing loans.
IV. Wages for work.Correct
Examples of level annuity include insurance premiums and monthly installments on housing loans and automobile loans, which are paid off by way of equal installments over a period of time.
Incorrect
Examples of level annuity include insurance premiums and monthly installments on housing loans and automobile loans, which are paid off by way of equal installments over a period of time.
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Question 18 of 30
18. Question
An annuity is a series of payments made at equally spaced intervals of time. If the first payment is made or received at the end of the first period, then it is referred to as an ordinary annuity. Which of the following is/are examples of ordinary annuity?
I. Salary paid only after an employee completes his duties for the month.
II. Insurance premiums.
III. Monthly installments on housing loans.
IV. House rent usually paid by the tenant only at the end of the month.Correct
If the first payment is made or received at the end of the first period, then we call it an ordinary annuity. Examples include a salary, which will be paid only after an employee completes his duties for the month, and house rent, which will be usually paid by the tenant only at the end of the month. The interval between successive payments is called the payment period.
Incorrect
If the first payment is made or received at the end of the first period, then we call it an ordinary annuity. Examples include a salary, which will be paid only after an employee completes his duties for the month, and house rent, which will be usually paid by the tenant only at the end of the month. The interval between successive payments is called the payment period.
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Question 19 of 30
19. Question
When a firm is incorporated, a stated number of shares will be authorized for issue by the promoters. Which of the following refers to the value of the shares that are currently being held by the investors?
Correct
The value of the shares that are currently being held by the investors is referred to as the outstanding capital. In the event of a company buying back shares from the public, the outstanding capital will decline and will be less than what was issued.
Incorrect
The value of the shares that are currently being held by the investors is referred to as the outstanding capital. In the event of a company buying back shares from the public, the outstanding capital will decline and will be less than what was issued.
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Question 20 of 30
20. Question
Shareholders are entitled to share the profits made by the firm because they represent the owners of the venture. Which of the following refers to cash payouts that shareholders receive from the firm?
Correct
A firm will typically pay out a percentage of its earned profits during the financial year in the form of cash to its shareholders. Cash payouts that shareholders receive from the firm are referred to as dividends.
Incorrect
A firm will typically pay out a percentage of its earned profits during the financial year in the form of cash to its shareholders. Cash payouts that shareholders receive from the firm are referred to as dividends.
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Question 21 of 30
21. Question
The key role of an economic system is to ensure efficient allocation. Which of the following are economic systems designed to do?
I. Charge excessive taxes to remove cash from circulation.
II. Collect savings in an economy.
III. Allocate the available resources efficiently to those who seek funds.
IV. To invest in productive assets.Correct
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
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 22 of 30
22. Question
Federal funds are the principal means of making payments in the money market in the United States. Which of the following statements best describes federal funds?
Correct
Money that can be immediately transferred from the buyer to the seller or from the lender to the borrower is referred to as federal funds. The term arose because, in the earlier years, the principal way of effecting an immediate fund transfer was by debiting the reserve account held by the lender at its regional Federal Reserve bank and crediting the reserve account maintained by the borrower at its regional Federal Reserve bank.
Incorrect
Money that can be immediately transferred from the buyer to the seller or from the lender to the borrower is referred to as federal funds. The term arose because, in the earlier years, the principal way of effecting an immediate fund transfer was by debiting the reserve account held by the lender at its regional Federal Reserve bank and crediting the reserve account maintained by the borrower at its regional Federal Reserve bank.
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Question 23 of 30
23. Question
During a given financial year, irrespective of which sector it may belong to, every economic unit, 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?
I. A transparent budget unit.
II. A balanced budget unit.
III. A deficit budget unit.
IV. A surplus budget unit.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 24 of 30
24. Question
One way to classify financial markets is based on the original term to maturity of the financial claims that are traded. Based on the original term to maturity of the financial claims that are traded, which of the following are types of financial markets?
I. Foreign market
II. Capital market
III. Money market
IV. Local marketCorrect
Based on the original term to maturity of the financial claims that are traded, financial markets are classified into two types – the money market and capital market. The market in which instruments with one year or less to maturity are traded is called the money market, whereas the market in which medium to long-term instruments are traded is called a capital market.
Incorrect
Based on the original term to maturity of the financial claims that are traded, financial markets are classified into two types – the money market and capital market. The market in which instruments with one year or less to maturity are traded is called the money market, whereas the market in which medium to long-term instruments are traded is called a capital market.
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Question 25 of 30
25. Question
When a unit of currency is deposited with a bank, only a fraction of it can be lent out. The balance has to be kept either in the form of approved securities or as cash. Which of the following is used to refer to this amount?
Correct
The balance kept in a bank either in the form of approved securities or as cash is referred to as reserve. The bank cannot lend the money but must keep it in the vault, on-site or at the central bank, in order to meet any large and unexpected demand for withdrawals.
Incorrect
The balance kept in a bank either in the form of approved securities or as cash is referred to as reserve. The bank cannot lend the money but must keep it in the vault, on-site or at the central bank, in order to meet any large and unexpected demand for withdrawals.
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Question 26 of 30
26. Question
Bank reserves decrease during periods of economic expansion and increase during recessions. Which of the following implications of a lower bank reserve ratio is/are accurate?
I. Higher rates will be paid on deposits.
II. Lower rates will be paid on deposits.
III. More money will be available with the bank for commercial lending.
IV. Less money will be available with the bank for commercial lending.Correct
The lower the reserve ratio, the more money that will be available with the bank for commercial lending. The lower the reserve ratio, the higher will be the rates paid on deposits; and the lower the lending rates, for the larger the amount of funds available, the smaller the net interest margin that banks can afford to operate with.
Incorrect
The lower the reserve ratio, the more money that will be available with the bank for commercial lending. The lower the reserve ratio, the higher will be the rates paid on deposits; and the lower the lending rates, for the larger the amount of funds available, the smaller the net interest margin that banks can afford to operate with.
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Question 27 of 30
27. Question
After a trade has been matched by a trading system, a post-trade process called clearing and settlement needs to commence. Which of the following is/are reasons for carrying out the clearing and settlement process?
I. To ensure that the seller receives the securities he has acquired.
II. To ensure that the seller receives the cash that is due her.
III. To ensure that the buyer receives the cash that is due her.
IV. To ensure that the buyer receives the securities he has acquired.Correct
After a trade has been matched by a trading system, a post-trade process called clearing and settlement needs to commence in order to ensure that the seller receives the cash that is due her, whereas the buyer receives the securities he has acquired. Clearing refers to all the post-trade processes other than the final settlement, where the term settlement refers to the payment of cash to the seller and transfer of ownership of the securities from the seller to the buyer.
Incorrect
After a trade has been matched by a trading system, a post-trade process called clearing and settlement needs to commence in order to ensure that the seller receives the cash that is due her, whereas the buyer receives the securities he has acquired. Clearing refers to all the post-trade processes other than the final settlement, where the term settlement refers to the payment of cash to the seller and transfer of ownership of the securities from the seller to the buyer.
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Question 28 of 30
28. Question
Which of the following terms refers to the replacement of physical share certificates by electronic records?
Correct
The replacement of physical share certificates by electronic records is referred to as dematerialization. The introduction of dematerialization allowed for accounts to be updated automatically and swiftly.
Incorrect
The replacement of physical share certificates by electronic records is referred to as dematerialization. The introduction of dematerialization allowed for accounts to be updated automatically and swiftly.
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Question 29 of 30
29. Question
Economic agents are consumers, producers, and/or influencers of capital markets and the economy at large. Economic agents are usually divided into sectors or categories. Which of the following is/are part of those categories/sectors?
I. Household
II. Business
III. Religious bodies
IV. GovernmentCorrect
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:
– Business
– Household
– GovernmentIncorrect
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:
– Business
– Household
– Government -
Question 30 of 30
30. Question
Every long position must be matched by a corresponding short position. Which of the following terms refers to the number of open positions at any point in time?
Correct
Open interest refers to the number of open positions at any point in time. Open interest may be measured as the total number of open long positions at a given point in time or, equivalently, as the total number of open short positions.
Incorrect
Open interest refers to the number of open positions at any point in time. Open interest may be measured as the total number of open long positions at a given point in time or, equivalently, as the total number of open short positions.