1.The forward exchange rate locked in with a forward exchange-rate contract:

(a)will always be higher than the spot exchange rate.

(b)will always be lower than the spot exchange rate.

(c)may be higher or lower than the spot exchange rate.

(d)is unrelated to the current spot exchange rate.

2.If Eurodollar interest rates are higher than Euroyen interest rates:

(a)the dollar price of forward yen will be less than the spot price.

(b)the dollar price of forward yen will be more than the spot price.

(c)the dollar price of forward yen will be the same as the spot price.

(d)the dollar price of forward yen may be more or less than the spot price.

3.The Eurocurrency market is:

(a)a market in foreign exchange.

(b)a market in forward interest rate contracts.

(c)an international financial market in bank deposits and loans.

(d)a collection of European money markets.

4.The U.S. dollar forward exchange rate premium or discount on the British pound sterling is most likely to be equal to:

(a)the difference between U.S. and U.K. Treasury bill rates.

(b)the difference between U.S. and U.K. prime rates.

(c)the difference between U.S. and U.K. domestic bank deposit rates.

(d)the difference between Eurodollar and Eurosterling deposit rates.

5.A forward exchange contract to buy German marks in 60 days can be replicated by:

(a)borrowing dollars, converting them to marks, and placing them in a Euromark deposit.

(b)borrowing marks, converting them to dollars, and placing them in a Eurodollar deposit.

(c)borrowing dollars and placing them in a Eurodollar deposit.

(d)borrowing marks and placing them in a Euromark deposit.

6.A forward rate agreement is:

(a)a loan commitment to borrow foreign currency.

(b)a forward contract on interest rates.

(c)a forward contract on long-dated foreign currency futures.

(d)a forward loan commitment.

7.The contractual rate on a Norwegian FRA can be derived from:

(a)the yield curve for EuroNorwegian krone (NIBOR) interest rates.

(b)the yield curve for Eurodollar interest rates.

(c)the term structure of forward exchange rates for the Norwegian krone.

(d)the term structure of the U.S. Treasury yield curve.

8.With a forward exchange-rate contract, payment must be made:

(a)as soon as the contract is entered into.

(b)periodically over the life of the contract.

(c)only if the contract is exercised.

(d)on the contract's maturity date.

9.If the three-month forward discount on the dollar relative to the French franc is annualized 5 percent:

(a)three-month Eurofranc deposit rates are 5 percent higher than three-month Eurodollar rates.

(b)three-month Eurofranc deposit rates are 5 percent lower than three-month Eurodollar rates.

(c)three-month Eurofranc and Eurodollar rates are the same.

(d)forward French francs are less expensive than spot French francs.

10.If the one-year Eurodollar rate is 6 percent and the two-year Eurodollar rate is 7 percent, the one-year forward rate implicit in the Eurodollar yield curve is very close to:

(a)7 percent.

(b)6 percent.

(c)8 percent.

(d)13 percent.