1. Which of the following is NOT true regarding nondeliverable forward (NDF) contracts?

   a. NDFs are used primarily for emerging market currencies.

   b. NDFs can only be traded by central banks.

   c. Pricing of NDFs reflects basic interest rate differentials plus an additional premium charged for dollar settlement.

   d. All of the above are true.

2. Most foreign exchange transactions are through the U.S. dollar. If the transaction is expressed as the foreign currency per dollar this is known as ________ whereas ________ are expressed as dollars per foreign unit.

   a. European terms; indirect

   b. American terms; European terms

   c. European terms; American terms

   d. American terms; direct

3. A ________ transaction in the foreign exchange market requires delivery of foreign exchange at some future date.

   a. spot

   b. forward

   c. currency

   d. swap

4. Foreign exchange swaps were larger in 1998 than in 2001. The Bank for International Settlements attributes this to

   a. growing electronic brokering in the spot interbank market.

   b. the introduction of the Euro.

   c. consolidation in general.

   d. All of the above.

5. A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.

   a. 'forward against spot'

   b. repurchase agreement

   c. 'spot against forward'

   d. 'forspot'

6. The primary motive of foreign exchange activities by most central banks is profit.

   a. true

   b. false

7. For arbitrage opportunities to be practical,

   a. bank traders must be able to execute the arbitrage trades without an initial sum of money relying on their bank's credit standing.

   b. participants must have instant access to executions.

   c. participants must have instant access to quotes.

   d. All of the above must be true.

8. ________ make money on currency exchanges by the difference between the ________ price, or the price they offer to pay, and the ________ price, or the price at which they offer to sell the currency.

   a. Brokers; bid; ask

   b. Dealers; bid; ask

   c. Dealers; ask; bid

   d. Brokers; ask; bid

9. When the cross rate for currencies offered by two banks differs from the exchange rate offered by a third bank, a triangular arbitrage opportunity exists.

   a. true

   b. false

10. A forward contract to deliver British pounds for U.S. dollars could be described either as ________ or ________.

   a. buying dollars forward; buying pounds forward

   b. selling pounds forward; selling dollars forward

   c. selling dollars forward; buying pounds forward

   d. selling pounds forward; buying dollars forward