# Chapter 3 International Finance

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Chapter 3—International Financial Markets

1. Assume that a bank's bid rate on Swiss francs is \$.45 and its ask rate is \$.47. Its bid-ask percentage spread is:

ANS: B
SOLUTION:|Bid-ask percentage spread = (\$.47 - \$.45)/\$.47 = 4.26%|

PTS: 1

2. Assume that a bank's bid rate on Japanese yen is \$.0041 and its ask rate is \$.0043. Its bid-ask percentage spread is:

ANS: C
SOLUTION:|Bid-ask percentage spread = (\$.0043 - \$.0041)/\$.0043 = 4.65%|

PTS: 1

3. The bid/ask spread for small retail transactions is commonly in the range of ____ percent.
a.|3 to 7|
b.|.01 to .03|
c.|10 to 15|
d.|.5 to 1|

ANS: A PTS: 1

4. ____ is not a factor that affects the bid/ask spread.
a.|Order costs|
b.|Inventory costs|
c.|Volume|
d.|All of the above factors affect the bid/ask spread|

ANS: D PTS: 1

5. The forward rate is the exchange rate used for immediate exchange of currencies.
a. True
b. False

ANS: F PTS: 1

6. The ask quote is the price for which a bank offers to sell a currency.
a. True
b. False

ANS: T PTS: 1

7. According to the text, the forward rate is commonly used for:
a.|hedging.|
b.|immediate transactions.|
c.|previous transactions.|
d.|bond transactions.|

ANS: A PTS: 1

8. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in 90 days, it could:
a.|obtain a 90-day forward purchase contract on euros.|
b.|obtain a 90-day forward sale contract on euros.|
c.|purchase euros 90 days from now at the spot rate.|
d.|sell euros 90 days from now at the spot rate.|

ANS: B PTS: 1

9. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need C\$200,000 in 90 days to make payment

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