Home > Business Professionals of America (BPA) > Quizzes > Money, Banking, and Financial Markets Practice Test: The Foreign Exchange Market
Money, Banking, and Financial Markets Practice Test: The Foreign Exchange Market
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The foreign exchange market, or forex market, is a decentralized market that allows traders to buy and sell currencies to profit from changes in exchange rates. The market's basic function is to transfer currencies between countries to settle payments, and it also offers short-term loans to people or businesses.  Here are some basics of the forex market: Currency pairs: The first currency stated is the base currency, while the second currency is the quote currency. The base currency determines the value of the quote currency and affects the overall profitability of a trade. Leverage: This... Show more
Money, Banking, and Financial Markets Practice Test: The Foreign Exchange Market
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25 Questions

1. If the dollar appreciates from 1.5 Brazilian reals per dollar to 2.0 reals per dollar, the real depreciates from ________ per real to ________ per real.
2. When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.
3. When the exchange rate for the Mexican peso changes from 10 pesos to the U.S dollar to 9 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.
4. Everything else held constant, when the current value of the domestic currency increases, the________ domestic assets ________.
5. Suppose that the Federal Reserve conducts an open market sale. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar will ________.
6. ________ in the expected future domestic exchange rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant.
7. If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will
8. The theory of purchasing power parity cannot fully explain exchange rate movements because
9. An increase in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant.
10. ________ in the expected future domestic exchange rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant.
11. When the value of the dollar changes from £0.75 to £0.5, then the British pound has ________ and the U.S. dollar has ________.
12. The theory of PPP suggests that if one countryʹs price level falls relative to anotherʹs, its currency should
13. An increase in the foreign interest rate causes the demand for domestic assets to shift to the________ and the domestic currency to ________, everything else held constant.
14. Although foreign exchange market trades are said to involve the buying and selling of currencies, most trades involve the buying and selling of
15. ________ in the domestic interest rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant.
16. Suppose a report was released today that showed the Euro-Zone inflation rate is running above the European Central Bankʹs inflation rate target. This leads people to expect that the EuropeanCentral Bank will enact contractionary policy in the near future. Everything else held constant, the release of this report would immediately cause the demand for U.S. assets to ________ and the U.S. dollar will ________.
17. ________ in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to depreciate, everything else held constant.
18. The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.
19. ________ in the domestic interest rate causes the demand for domestic assets to shift to the________ and the domestic currency to appreciate, everything else held constant.
20. The theory of asset demand suggests that the most important factor affecting the demand for domestic and foreign assets is
21. ________ in the domestic interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant.
22. If, in retaliation for ʺunfairʺ trade practices, Congress imposes a 30 percent tariff on JapaneseDVD recorders, but at the same time, U.S. demand for Japanese goods increases, then, in the long run, ________, everything else held constant
23. In the long run, a rise in a countryʹs price level (relative to the foreign price level) causes its currency to ________, while a fall in the countryʹs relative price level causes its currency to________.
24. The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.
25. If the British pound appreciates from $0.50 per pound to $0.75 per pound, the U.S. dollar depreciates from ________ per dollar to ________ per dollar.

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