A ________, which is between a bank and a customer (or another bank), specifies delivery at a fixed future date, of a fixed amount of one currency against dollar payment.
Answer(s): B
A U.S. firm buys goods from Germany with payment of DM 500,000 due in 90 days. The current price of the DM is $0.4490, yet may rise against the dollar which increases the dollar cost of the goods. The U.S. firm can protect itself against this exchange risk by entering into a 90-day forward contract with a bank at a price of $0.4511. Thus, according to the forward contract, the bank will give the U.S. firm DM 500,000 in 90 days to pay for the goods and the U.S. firm will give the bank $225,550 million (DM 500,000 x 0.4511). If the spot rate in 90 days is less than $0.4511, the U.S. firm will experience a loss on the forward contract because it is buying marks for more than the current rate. On the other hand, if the spot rate is higher than $0.4511, the importer will implicitly profit.
The simple or linear annualized short-term interest rate is calculated according to:
Answer(s): C
The rate to be paid over the period is equal to the annual rate multiplied by the length of the period, as a proportion of a year.
________ exchange-rates are determined by the market forces of supply and demand.
Answer(s): D
A system of flexible exchange rates is a system where the exchange rate is determined by the market forces.Floating exchange rate is synonymous with flexible exchange rate.
Exports of goods (merchandise) and services minus the imports of goods and services equals ________.
When the balance of service exports and imports are added to the balance of merchandise trade the balance on goods and services is obtained.
A country cannot maintain currency convertibility if:
A country can either follow an independent monetary policy and allow its exchange rate to fluctuate or tie its monetary policy to the maintenance of the fixed exchange rate.
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