QUESTION: 1257

When referring to foreign exchange trades, "American terms" refers to:

a direct quote outside the U.S.
trades by Americans living abroad
the number of foreign currency units per U.S. dollar
an indirect quote in the U.S.
the number of U.S. dollars per unit of foreign currency

Answer(s): E

Explanation:

"European terms" refers to the number of foreign currency units per U.S. dollar.

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QUESTION: 1258

In a purely floating exchange rate economy, a shift toward a more expansionary fiscal policy will move the capital account toward a ________. The current account will move toward a ________.

surplus, surplus too
surplus, deficit
deficit, surplus
deficit, deficit too

Answer(s): B

Explanation:

An expansionary fiscal policy serves to raise interest rates and increase capital inflow. This moves the capital account toward a surplus. Since the changes in the capital and current accounts must balance out in a purely floating exchange rate economy, the current account moves toward a deficit.

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QUESTION: 1259

In an open economy, the market demand for domestic products is

overstated by the horizontal sum of the domestic and foreign demand.
the horizontal sum of domestic and foreign demand.
understated by the horizontal sum of the domestic and foreign demand.
the vertical sum of domestic and foreign demand.

Answer(s): B

Explanation:

The domestic producer can supply both the domestic consumer and consumers abroad. Thus, market demand, which is the addition of domestic and foreign demand, can be determined by finding the domestic demand (at the intersection of the domestic demand curve with the international price) and adding it to foreign demand (found in the same way with the demand curve for foreigners).

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QUESTION: 1260

________ utilize forward contracts to safeguard the value (in home currency terms) of assets denominated in a foreign currency on its balance sheet.

All of these answers
Arbitrageurs
Traders
Hedgers
Speculators

Answer(s): D

Explanation:

Speculators choose to be exposed to currency risk (unlike the three above who attempt to minimize/eliminate risk) by using forward contracts to benefit from exchange rate fluctuations. Arbitrageurs utilize forward contracts to rid themselves of exchange risk in the currency markets. Traders utilize forward contracts to end (or cover) the chance of loss on export or import orders that are denominated in foreign currencies.

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Free CFA-Level-I Exam Braindumps (page: 315)

QUESTION: 1257

Explanation:

QUESTION: 1258

Explanation:

QUESTION: 1259

Explanation:

QUESTION: 1260

Explanation: