GROUP 9; CHAPTER 14&15

Name :
Section :
IDENTIFICATION
1. It is the market in which individuals, firms and banks buy and sell foreign currencies or foreign
exchange.
2. Involves an agreement today to buy or sell a specified amount of a foreign currency at a specified
future date at a rate agreed upon today.
3. It occurs whenever a future payment must be made or received in a foreign currency, involved
due to spot exchange rates that vary over time.
4. This refers to the purchase of a currency in the monetary centers where it is cheaper, for
immediate resale in the monetary center where it is more expensive, in order to make profit.
5. It is a contract giving the purchaser the right, but not the obligation, to buy (a call option) or to
sell (a put option) a standard amount of a traded currency on a stated date or at any time before a
stated date and at a stated price.
6. Market in which borrowing and lending takes place
7. Long-term debt securities that are sold outside the borrowers country to raise the long-term
capital in a currency other than the currency of the nation where the bonds are sold.
8. Medium-term financial instruments falling somewhat between short-term Eurocurrency banks
loans and long-term Eurobonds.
9. Two Versions of PPP Theory
10. Swedish economists who elaborated and brought back PPP theory.
11. An approach postulating that the demand for nominal money balances positively related to
nominal national income.
12. A theory postulates that the exchange rate between two currencies is equal to the ratio of the price
level in the two countries.
13. A _______ in the nation's balance of payments result from an excess in the stock of money
demanded that is not satisfied by domestic money authorities.
14. A _______ in the nation's balance of payments result from an excess in the stock of money
supplied that is not eliminated or corrected by the nation's monetary authorities.
15. An approach postulates the exchange rate is determined in the process of equilibrating or
balancing the stock or total demand and supply of financial assets in each country.
MULTIPLE CHOICE

1. Monetary approach developed in the year _____.

A.) 1990s B.) 1970
C.) Dont Know
2. Equation of Demand for Money
A.) Md = kPY
B.) R = P x Q C.) Dont Know
3. Equation for Supply of Money
A.) i = i* + EA - RP
B.) Ms = m(D+F)
C.) Dont Know
4. Interest at home has an inverse relationship with demand for money.
A.) True
B.) False
C.) Dont Know
5. According to portfolio balance approach, domestic and foreign bonds are imperfect
substitutes.

A.) False B.) True

C.) Dont Know

6. According to the law of one price,

a. equilibrates trade in goods and services while completely disregarding capital accounts.
b. equilibrium exchange rate between two currency is equal to the price levels in the two
nations.
c. a given commodity should have the same price in both countries when expressed in terms of
the same currency.
d. companies and federal government outside their own country, usually currency of a nonEuropean currency deposited in Europe
7. Currency deposited by companies and federal government outside their own country, usually currency
of a non-European currency deposited in Europe.
a. Eurocurrency
b. Eurocurrency Market
c. Euronote
d. Offshore deposits
8. Medium-term financial instruments falling somewhat between short-term Eurocurrency banks loans
and long-term Eurobonds.
a. Eurocurrency
b. Eurocurrency Market
c. Euronote
d. Offshore deposits
9. Non-European international monetary that practice keeping bank deposits denominated in currency
other than that of the nation in which the deposit is held.
a. Eurocurrency
b. Eurocurrency Market
c. Euronote
d. Offshore deposits
10. Postulates that equilibrium exchange rate between two currency is equal to the price levels in the two
nations.
a. Relative purchasing power parity theory
b. Absolute purchasing power parity theory

ENUMERATION
26-27. Types of speculations
28-30. Functions of the Foreign Exchange Markets