ch 6. true or false. 1. In foreign exchange markets hard currency flows occur mo

Question

ch 6. true or false. 1. In foreign exchange markets hard currency flows occur mostly due to the exchange of foreign-currency-denominated financial instruments (such as foreign bonds and stocks), but hardly ever because of tourism or illegal transactions. a. True b. False 2. The demand for a particular foreign currency is derived primarily from debit entries in the balance of payments related to imports of goods and services, and private capital outflows. a. True b. False 3. To calculate a real exchange rate, one simply multiplies the nominal exchange rate by the inverse of the two countries consumer price indexes. a. True b. False 4. A forward contract is never a way to hedge the risks of transaction exposure in foreign exchange. a. True b. False 5. Foreign exchange derivatives can be used to hedge against foreign exchange risks, but forward exchange contracts are not one of these. a. True b. False 6. It is mostly private transactions that are recorded in the current and capital accounts while official government transactions occur in the official settlements balance. a. True b. False 7. Foreign exchange derivatives can only be used for hedging foreign exchange risk, but not for currency speculation. a. True b. False 8. Losses can result from a forward contract at the date it expires, thus a forward contract involves currency speculation as well as hedging against the risk of transaction exposure. a. True b. False 9. Effective exchange rates are an index currency value that is based on the weighted average of currencies that a nation most commonly trades with. a. True b. False 10. If the dollar price of the Yen is greater in the forward market than the spot market, there is a forward premium on the dollar. a. True b. False

Explanation / Answer

1. False

2. True

3. False

4. False

5. True

6. True

7. False

8. True

9. False

10. True

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