problem 1) Payment of a dividend by the American company to a foreign stockholder represents:

(a) debit in the U.S. financial account.
(b) credit in the U.S. current account.
(c) credit in the U.S. official reserve account.
(d) debit in the U.S. current account.

problem 2) According to National Income Accounting Identity, the present account (surplus) is equal to:

(a) S-I
(b) C+I+G+X
(c) I+X
(d) T-G

problem 3) If bank is selling Euros for $0.89, then determine the implied euro price of the dollar?

(a) 2.0
(b) 1.999
(c) 2.323
(d) 1.123

problem 4) Assume in London £/$ = 0.5 while in New York £/SF =0.2. The corresponding cross rate (SF/$) is:

(a) 2.5.
(b) 0.1.
(c) 0.4.
(d) 0.3.

problem 5) Riskless transactions to take advantage of profit opportunities because of a price differential or yield differential in excess of transaction costs are known as:

(a) differential actions.
(b) cash transactions.
(c) arbitrage.
(d) forward transactions.

problem 6) Difference between bid (buying) rates and ask (selling) rates is known as the:

(a) profit.
(b) arbitrage.
(c) spread.
(d) forward transaction.

problem 7) Size of the spread that a dealer will quote for foreign exchange transaction will differ depending on

(a) degree of market volatility at the time.
(b) degree of risk associated with a particular currency.
(c) size of the market for the currency being traded.
(d) All of above.

problem 8) Euro is said to be selling at a ______ if spot dollar price is $1.18 and the nine-month forward rate is $1.16

(a) forward discount
(b) forward premium
(c) forward spread
(d) none of the above

problem 9) Transaction in which both spot transaction and a forward transaction are agreed upon simultaneously is:

(a) arbitrage
(b) call
(c) swap
(d) put